They say you're more likely to get struck by lightning than to actually win the lottery, but that doesn't stop tens of millions of Americans from playing -- especially when there's a huge payout on the line.
At the amount the Mega Millions drawing was worth on the night of Tuesday, July 19, the $555 million jackpot would have been the fifth-largest ever won, but it doesn't even crack the top ten payouts of all time.
Nonetheless, the prize will be life-changing for whoever is ultimately lucky enough to win it -- and, now, the national lottery game’s half-a-billion-dollar prize is worth even more, with an estimated $630 million at stake for Friday night’s pull.
But exactly how much will the tax bill for such a huge sum be?
CNBC explained how lottery taxes work, noting that whether the winner chooses to receive their prize as an annuity of 30 payments over 29 years or as a reduced lump sum, the tax bill is wild.
Per the news outlet's report:
For this $630 million jackpot, the cash option — which most winners choose — is $359.7 million. A mandatory 24% federal tax withholding on that amount would reduce your winnings by $86.3 million.
However, because the top federal marginal tax rate is 37% — which applies to income above $539,900 as a single taxpayer or $647,850 for married couples filing jointly — you could expect to owe more at tax time.
The American Institute of CPAs (AICPA) weighed in and said one of the best ways for lottery winners -- or any high-income earners -- to reduce their annual tax bill is to donate a large amount to charity.
The IRS offers the following information regarding charitable contributions and tax deductions:
In most cases, the amount of charitable cash contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to a percentage (usually 60 percent) of the taxpayer’s adjusted gross income (AGI). Qualified contributions are not subject to this limitation. Individuals may deduct qualified contributions of up to 100 percent of their adjusted gross income.
If you have questions about how to reduce your own tax bill, talk to a qualified CPA in your area. As for winning the current Mega Millions jackpot -- may the odds be ever in your favor.