The Reality Behind Winning The Lottery
The idea of winning the lottery sounds like a dream to most people, but the reality behind winning is hard for many to grasp. In January 2016, the lottery winnings hit $1.5 billion, but how much do you actually take home after taxes and fees?
Winner’s are offered two options after the ticket and numbers are verified:
You can take a “lump sum” meaning you take cash value of the prize. By taking the lump sum, you are subject to all taxes up front and are only given the current cash value of the prize.
The other option is to take the winnings in 30 payments over the next 29 years which could eventually add up to $1.5 billion.
After deciding on a plan, the big hits are taken from your prize.
Seeing as choice number two comes with a number of variables, let’s assume you decide to take the lump sum:
Prize winnings are taxable income, according to the IRS, and this sum puts you in the highest tax bracket of 39.6 % or $594 million.
The US government withholds 25% of this sum out immediately for any person with a social security number meaning $375 million. People without a social security number or fail to provide one has 28% withheld and foreigners have 30% withheld.
Winners will have to give the remaining 14.6% at tax time in April or another $219 million. You are left with only $906 million after the federal taxes are removed from the winnings.
As if that is not enough bad news, that is not the end...
State, County and City Taxes
Now comes the state, county, and city taxes. These taxes depend on location, but could total up to another 15% or $225 million. If you live in New York City, state taxes can be as high as 8.82% according to USA Mega. The municipal tax of living in New York city is another 3.9% of the winnings.
The best states to win the lottery in are Florida, New Hampshire, South Dakota, Washington, Tennessee, Texas, or Wyoming because these states don’t have personal income tax.
Remember how we started with $1.5 billion...the winnings have now been reduced down to $681 million. Depending on how generous you are towards family and friends, the total could be even lower.
Now, I’m sure people would still be more than willing to win $681 million…but it does seem a bit smaller when you compare it to the $1.5 billion we started with. The reality of winning the lottery is this, taxes, taxes, more taxes, oh, and a higher tax bracket.
By Learn Accounting Free | 2016-09-20 14:55:13 | Uncategorized | 0 Comments
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