Someone is holding the single winning ticket for the $540 million Mega Millions jackpot. The ticket worth half a billion dollars was sold at a Speedway gas station near Interstate 70 in Cambridge City, Indiana, 50 miles east of Indianapolis. The numbers drawn late Friday night were 20, 19, 55, 73 and 8. The megaball is 5. The winner has 180 days to claim it, so what can go wrong? Plenty
Sure, winning the $540 million Mega Millions jackpot would make you an instant millionaire. But to begin with, if you want a lump sum, the jackpot is actually only $380 million, about 30 percent less. You only get $540 million if you take your winnings in 30 payments over 29 years. Then there are taxes, and tallying the tax bill can be daunting. Taxes on lottery winnings are unavoidable, but tax withholding is only a part of it. The federal income tax withholding rate on lottery winnings is only 25%, so some lottery winners can have trouble paying their taxes when they later file their tax returns.
The 25% withholding rate isn’t for everyone, but it apples to most people, provided that they provide a (valid) Social Security Number (SSN). If they don’t have an SSN or don’t provide it, the rate is 28%. Non-U.S. taxpayers usually have 30% withholding. But whichever withholding tax rate applies, it may not be enough. If (like most winners) your withholding is at 25%, you might owe as much as a whopping 14.6% in federal income taxes at tax return time next year. More than a few lottery winners have trouble making that big tax payment. By tax time, they may have spent some, given it away, invested it, and otherwise made writing a big check difficult to do. Then, you must add state taxes, and even local ones.
The fallout from lottery lawsuits can be devastating. Claims by co-workers, former spouses and others who say they deserve a share of the loot can tie up the money for years. They can also make an already difficult tax situation more complex. A recent unhappy headline found a jilted lottery winner filing for bankruptcy. The woman won the lottery, then was sued by her former boyfriend over an alleged oral contract to divide the loot. An oral contract? Yes. The lottery winner lost, and then filed for bankruptcy.