If I win the Mega-Millions Lottery here in CA, lets just say $100,000,000, and I opt to take it in a lump sum, I know I will probably only receive half the face value of the win.
I now have $50,000,000
Will I have to pay taxes only on the amount I received, the $50,000,000
or
Will I be taxed for the original face value of $100,000,000
Thanks
I can’t imagine why you’d be taxed on income you don’t receive. If you receive $50 million, you should be paying tax on $50 million. I am not a tax expert, though, but it doesn’t really make any sense to me otherwise.
If you were promised a year end bonus of $100,000, but your company went bankrupt before you collect, do you think you would have to pay a tax on that money?
The face value 100M is paid out over 20 years (I’m assuming it’s like all the other lotteries out there). The state takes the interest on the 50M, and pays you as an annuity out of this funding. You’d pay taxes based on the annual payment you receive from the state. Taxes on 5M each April 15 would be due.
If you take the lump sum 50M payout, you pay all the taxes (on the 50M amount) up front, then you can invest/spend it as you like.
Makes me wonder here. Do you get a 1099 as a lottery annuity recipient? I’d assume so, but I’d not be surprised if there was yet another form from the govt. 
Yes, if you take the lump sum of $50 million you’ll pay the taxes on the $50 million, not the $100 million annuity amount.
This is not quite true. I don’t know about multi-million $ payouts, but on others there’s a fixed % witholding, and depending on your tax brackets and other income, you could end up owing some more. Or less.
Lottery winnings are Income, taxed as such.
Withholding here in Minnesota, according to the Lottery Website is 25% Federal and 7.25% State, for a total of 32.25%. However, maximum tax rates are 34% Federal and 7.85% State, for a total of 41.85%.
So if, for example, I was to win this Wednesday’s Powerball;
Annuity: $35 million, or $1,166,667 per year for 30 years. I would get a check for $790,416.89, but would potentially owe as much as another $112,000, leaving me with as little as $678,416, depending on my other income and available deductions, how much I gave to charity and so forth.
If I took the cash option lump sum of $20.4 million, I’d get a check for $13,821,000, but potentially owe as much as another $1,958,400, again depending on other variables, as the difference between the withholding amount and the actual tax amount due.
The general figure I’ve heard bandied about in California is that if you take a lump sum payout, after taxes, it will equal about 1/3 of the amount won, ie a $100 million dollar jackpot turns into $33 million cash.
The “face value” of a lottery prize is actually a piece of deception. The true present value is a lot less, but the State allows itself to advertise a deceptive figure much higher than what’s right.
Fortunately, the IRS doesn’t participate in this charade. You are taxed on what you actually receive, in the year when you receive it.
I still can’t get over the fact that you tax your lotteries.
It’s my understanding that the state of California does not tax lottery winnings on games that are wholly in-state, but that federal taxes do apply.
Thus, a Super Lotto jackpot winner would pay only Federal taxes, but a Californian who collected a Mega Millions jackpot would be liable for California state taxes in addition to federal taxes.
I REALLY want to experience first-hand what the actual situation is.
So, what happens when a non-citizen wins? And could you escape taxes by putting the winnings in your 401K / pension fund / college fund / whatever?
Here in the U.K., for the National Lottery and Euromillions draws, the tax - 12% - is paid in advance.
Taxing on the back end allows higher jackpots to be advertised.
I always wondered where you pay the state taxes? Where you bought the ticket or where you live. 'Cause a few states don’t have state tax. So if you lived in that state you’d pay federal taxes on the Megamillions but not state tax, since there isn’t any.
I know California is different on somethings, like Megamillions has set amounts they pay for prizes other than the jackpot, but in CA they pay a percentage. So when the Megamillions gets high enough some people have won over a million dollars on like 4 numbers and the powerball, while if they lived in another state they’d have only won $250,000
Markxxx - I’d imagine that it’s taxed in a similar way to “out of state work.” E.g. If you live in NH (no income tax), and work in MA (5.3% tax), you pay MA all 5.3% of your income derived in MA. If you live in ME and work in MA, there is some sort of a split. (I live in NH, and am only familiar with that set of rules, but others at my company have the MA/ME split).
Quartz - You’d still be taxed. Being a non-citizen does not remove your liability for taxes.
DrDeth - Withholding and tax liability are separate issues. They may hold back a fixed %, but you’re liable at whatever the tax rate is on your total income. It’s entirely possible that you’d still have to write a check on April 15 for any shortfall between your liability and the withheld amount.
This is interesting. If I purchase my ticket in another state, do I pay that state’s income tax or my state’s? Does it change if I win a Powerball jackpot in a non-Powerball state? Can I buy a Megamillions subscription from New Jersey (no state lotto tax) here in Illinois, a Megamillons member state, and get out of paying tax-tax?
They take the withholding where you claim it. So it doesn’t matter if you purchase it in another state if you claim it in your own. However, if your state doesn’t sell Powerball tickets, for example, you’re going to have to claim it in a state that does, because your state is not set up to handle the administration of the thing. Then they’ll withhold for that state, and you’ll have to deal with it just like the people who work in one state (and have taxes withheld there) and live in another (and pay there rather than the state they are withheld in).