Federal taxes are the same for everyone. Gains are taxed at 24% upfront, although your total tax bill will almost certainly be 37% when you actually file, as you'll likely be in the highest tax bracket.
In contrast, taxes on lottery winnings vary widely between US states. It typically ranges from 3% to 6%, but is as high as 10.9% in New York, the highest rate charged by any state participating in the lottery.
However, there are eight states that do not tax lottery winnings at all:
- California
- Florida
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
If you live in any of these states, you will receive the highest possible return. This means either $294,251,812 as a cash lump sum or a 30-year annuity totaling $616,764,360, According to usamega.com.
The total lump sum in these states is $50.2 million more than in New York, the most taxing state.
Where the ticket was purchased is also important, as a winning ticket purchased outside of your home state may result in taxes being imposed in the state in which the ticket was purchased. Generally, your state will require you to report out-of-state gains, but will provide a credit or deduction for taxes already paid to a non-resident state.
That means if you live in California, but bought a winning ticket in Oregon — which imposes an 8% state tax on jackpot winnings — the amount you'll take home will be about $46 million less than if you had bought the ticket at home in California, which does not impose state taxes on jackpots.
If you hit the jackpot, consider hiring a tax professional. They can help you navigate the tax implications, including the best choice to pay and whether you owe out-of-state taxes.
The next Mega Millions drawing is scheduled for Friday, March 22 at 11 PM ET.
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