Tax Planning

Lottery Winnings Come with a Hefty Tax Bill

Lottery Winnings Come with a Hefty Tax Bill

Do you dream of winning the lottery? 

Whether you play the lottery every week or watch the jackpot tick up and wait ‘til it reaches a certain number before it’s “worth it” for you to buy a ticket, you’ve probably fantasized about what you’d do with the cash if your numbers ever came up. No doubt that’s what the Arizona winner who just picked all six numbers did. They won the $473.1 million jackpot, which was higher than anybody realized because so many people bought it at the last minute. You just have to hope that they calculated the amount that the IRS will take before they ever get their money.

When somebody wins the lottery, they choose whether to be paid annually, over 29 years or take the cash all at once. Choosing the latter automatically reduces the winnings a bit, but whichever is chosen, the jackpot will be significantly diminished by taxes. 

Most people opt for getting all of their cash at once instead of taking the annuity. That drops the $473.1 million down to $283.3 million. Less, but still not a bad day’s work. Of course, then the IRS would take about $68 million, representing a 24% chunk. And that’s not the end of it. Because when your federal taxes are due you would be likely to owe another 13% based on your winnings putting you at the top federal tax rate of 37%. That’s the equivalent of another $36.8 million, or a total of $104.8 million.  (If you find it psychically objectionable to give the IRS that much money, you can opt for reducing the amount of income you take in by contributing to charity.)

Of course, the tax liability doesn’t stop with the federal government. In the case of the Arizona winner, the state is also going to be looking for 2.98%, representing their top rate for 2022. Subtract another $8.4 million from the top-line winnings. 

It’s just something to keep in mind as you’re dreaming of what you’ll do with all that money when you win!

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

GORDON W. MCNAMEE, CPA
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