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The million-dollar question for many players in Friday night’s $1.35 billion Mega Millions lottery drawing is — where do you live?
Your state of residence could be worth millions of dollars of tax savings on your winnings.
Winners all have to pay 37% federal income tax, amounting to $499.5 million over the life of the annuity at current tax rates. The cash payout is estimated at $707.9 million, which would produce a one-time tax bill of $261.9 million without considering other income, deductions and credits.
The max federal rate kicks in when single filers have more than $539,900 in taxable income or $647,850 if married filing jointly. Those are the 2022 IRS tax brackets.
Since the lottery prize will be won in 2023 the brackets will be slightly higher due to an adjustment for inflation.
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State taxes
Customer at the Cranberry Super Mini Mart in Cranberry, Pa., shows her Mega Millions ticket, Jan. 12, 2023. (AP Photo/Gene J. Puskar / AP Images) However, the big difference is with state taxes which range from 0% in several states to 11% in Hawaii, 10.9% in New York and 10.75% in New Jersey, with California's 12.3% rate being a special case. No tax states. Nine states don’t have an income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Non-participating states. Five states and Puerto Rico do not participate in Mega Millions. However, if you live in Alabama, Hawaii, Utah or Puerto Rico you still have to pay tax to those states or Puerto Rico for a ticket purchased elsewhere. Alaska is the other non-participating state. Alaska is also the nicest of the group. Not only is there no income tax, but the state actually gives residents thousands of dollars each year in the form of a Permanent Fund Dividend. The 2022 dividend was $3,284. New Hampshire taxes interest and dividends, so lottery winnings would be exempt from tax. POWERBALL JACKPOT: HOW TO HANDLE BECOMING A MULTIMILLIONAIRE OVERNIGHT Coronado Mural, Coronado, Calif., Dec. 8, 2018. Some states give tax breaks to lottery winners. For example, New Jersey does not tax the first $10,000 of lottery winnings, but only for the New Jersey Lottery. The biggest exemption is California, which does not tax lottery winnings, allowing the winner to escape a 12.3% state income tax. That break is worth $166 million. IOWA POWERBALL WINNER REVEALS WHAT YOU SHOULD DO RIGHT AFTER YOU WIN THE $1.2 BILLION JACKPOT Visitors exit The Sleeping Beauty Castle at Disneyland in Anaheim, Calif. at Disney’s original Disneyland and California Adventure theme parks in Anaheim, Jan. 27, 2023. (AP Photo/Jae C. Hong, File / AP Images) State residents pay tax on income earned everywhere, so a New York resident who buys a winning lottery ticket on the way to Disneyland would not pay California income tax, but would still have to pay New York income tax. The situation would be worse if you buy a winning ticket in one state with an income tax but live in another income tax state. In that case, you’d have to file state tax returns in both states. Fortunately, your home state would give you credit for tax paid in the other state where you bought your ticket. CHINESE LOTTERY PLAYER REPORTEDLY WINS $30M AND HIDES JACKPOT FROM WIFE AND CHILDREN Mega Millions entry card is displayed at the Cranberry Super Mini Mart in Cranberry, Pa., Thursday, Jan. 12, 2023. (AP Photo/Gene J. Puskar / AP Images) The odds aren’t good the Mega Millions winner will escape state tax, based on recent history. 14 of 19 top jackpot tickets over the past three years were sold in states with an income tax. 2022. Four of seven winning tickets were sold in states without an income tax: California ($426 million), New York ($128 million), Minnesota ($110 million), Tennessee ($20 million), Illinois ($1.337 billion), California/Florida ($502 million split between two tickets) 2021. All six jackpot tickets were sold in states with income tax: Arizona, Illinois, Michigan, New York (twice) and Pennsylvania. 2020. Five of six tickets were sold in states with an income tax: Arizona, Wisconsin, New Jersey (twice) and Wisconsin. The other jackpot went to a California winner ($22 million). CALIFORNIA STORE OWNER WHO SOLD $2B POWERBALL TICKET SHARES HIS PLANS FOR $1M BONUS Altadena, CA – November 08: Joe Chahayed, (CH) left, holds up a check for $1,000,000. for the retailer selling bonus and Daniel Chahayed, right, at Joes Service Center on Tuesday, Nov. 8, 2022, in Altadena, CA. Years ago Joe immigrated here from Syri (Francine Orr / Los Angeles Times via Getty Images / Getty Images) The $1.35 billion Mega Millions drawing takes place at 11 p.m. Eastern time. It is the second-largest Mega Millions prize, but the fourth largest U.S. lottery jackpot. Here is a look at the five largest U.S. jackpots that have been won and the states where the winning tickets were sold: CLICK HERE TO READ MORE ON FOX BUSINESS The Associated Press contributed to this report. Source: Read Full Article
California dreaming
So I should buy my ticket in California?
State winners
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