Question

how much do I pay in tax after winning a 1.6 mega millions jackpot. I want to know about final tax for single person in NY State with hypothetical local tax of 5%. Do i still need to pay for federal tax again when I file tax return? I just want to know final tax burden on lump sum cash out. you can use different state if you want to.

Answer 1

Lottery winnings are considered as ordinary taxable income for both federal and state tax purpose.That means your winnings are taxed the same as your wages or salary. And you must report the entire amount you receive each year on your tax return.

If you take a lumpsum cash out option then the amount your are going to recieve in mega million jackpot is $ 904 million as it is their immediate cash out option.

The tax calculation is as follows:

Lumpsum cash paid = $ 904,000,000

24% federal tax withheld on the above amount = 24% * $904,000,000= $ 216,960,000

13% extra i.e difference between (24% and top tax rate of 37%)= 13% * $904,000,000=$ 117,520,000

8.82%( as this is the actual state tax rate and i didnt take the assumed figure of 5%) state tax of new york = 8.82% * $ 904,000,000= $79,732,800

Therefore the total tax burden= $ 216,960,000+$ 117,520,000 +$79,732,800= $ 414,212,800

We can take deduction of only upto $10,000 of state taxes paid which is not huge and would reduce our tax burden by only $ 10,000