THE Mega Millions player who is holding onto a winning slip worth $1.22 billion risks losing hundreds of millions of dollars when they eventually claim their prize.
And they will be unable to prevent a hefty chunk of their sum from being wiped.
The gambler from California landed the prize after three months went by, and the Mega Millions jackpot continuously rolled over.
Mega Millions chiefs revealed that the $1.22 billion sum is thought to be the fifth-highest jackpot ever in the history of the game of chance.
But, the player will face a conundrum when it comes to claiming their fortune after defying the odds of one in around 302.6 million.
They could either take home a lump sum worth an estimated $549.7 million.
That would automatically mean almost half of the jackpot prize is wiped.
Or, they could opt to receive their prize in installments, known as the annuity.
The annuity is paid over 30 years, and the checks gradually increase year-on-year.
However, the lump sum tends to be the option that most jackpot winners, including the likes of Edwin Castro, take.
Castro holds the record for being the highest Powerball winner, hitting a $2.04 billion jackpot.
But he ended up taking home $997 million after choosing the lump sum.
If the $1.22 billion ticket holder takes the lump sum, then they will be taxed on the $549.7 million prize pot.
They will have to pay a rate of 24% to the federal government, an estimated $132 million.
Then, because of the amount won, they will likely be pushed into the top income tax bracket – which stands at 37%.
They could end up having to pay up another 13%, which adds another $70 million to the bill.
Lottery winnings: lump sum or annuity?
Players who win big on lottery tickets typically have a choice to make: lump sum or annuity?
The two payout methods can impact how much money you get from your prize.
Annuities pay out slowly in increments, often over 30 years.
Lump sums pay all at once but in a smaller amount, as taxes are withheld in one go. That means 24% of your prize goes to Uncle Sam right away. Many states tax winnings as well.
Annuities can provide winners time to set up the financial infrastructure required to take in a life-changing amount of money, but lump sums have the benefit of being taxed only once.
Inflation is also worth considering when making a choice, as payouts do not adjust with the value of a dollar. That means that you’ll likely be getting less valuable money towards the end of an annuity.
Each state and game pays out prizes differently, so it’s best to check with your state’s lottery to confirm payment policies. A financial advisor can also help you weigh the pros and cons of each option.
Experts have varying opinions on whether to take the lump sum or take the annuity.
But, the winner will have a reprieve that players in other states, such as New York, do not enjoy.
Winners in California do not have to pay any tax on their prize.
Whereas the state of New York has one of the highest tax rates on lottery prizes.
Gamblers in the Empire State must pay a rate of 10.9%.
Players in Maryland, New Jersey, and Oregon must pay 8% to the state.
There is a select number of states that do not tax players.
California is one state. The others include Florida, South Dakota, Tennessee, Texas, and Wyoming.
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