The lottery recently crossed $1 billion, so many people are buying tickets who wouldn’t have otherwise. It’s going to be one of the biggest drawings of all time.
That said, most people choose to get the cash option rather than taking payments if they win the lottery. Doing so cuts it down significantly, although someone would still be left with just over $602 million. It’s an incredible amount of money to take home, and it would certainly be life-changing. But do you have to pay taxes on all of that money?
Mandatory federal taxes
To start with, there are mandatory federal tax withholdings if you win the lottery. In this case, they would be about 24%. That would take just over $144 million off of your total.
Additionally, individuals who earn more than $539,900 have to pay 37% in income taxes. As such, you may have to pay even more on your earnings after the mandatory taxes.
What all this means is that the historic jackpot is not going to be nearly as big as the signs claim. It makes it feel as if you would instantly be a billionaire, but the reality is that you’re going to have less than half a million dollars, and you may still have to pay taxes on top of that. And all of that only applies if you were the sole winner of the total amount.
Avoiding tax mistakes
Because the lottery is at such a historic level, it works as a good example, but it’s not the only one. Any time that you win something, there is the potential that you have to pay taxes on those winnings. This can also apply to assets that you may win that have a financial value, even if those assets are not financial themselves. You certainly want to avoid making any tax mistakes in a situation like this, so be sure you know what obligations you have.