The Mega Millions jackpot has now surged to $1.1 billion. This is the tax bill if you happen to win

Personal finance

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It appears that the Mega Millions jackpot just won’t quit.

Due to strong ticket sales, lottery officials have adjusted the top prize upward to $1.1 billion from $1.02 billion for Friday night’s drawing. This is the fourth time a lottery jackpot has crossed the $1 billion mark.

While the chance of a single ticket hitting the motherlode is roughly 1 in 302.5 million, there’s always a guaranteed winner: Uncle Sam.

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Whether the windfall is taken as an annuity of 30 payments over 29 years or as an immediate, reduced cash lump sum, taxes end up taking a big bite out of any winnings.

For this $1.1 billion jackpot, the cash option — which most winners choose — is $648.2 million. A mandatory 24% federal tax withholding on that amount would reduce your winnings by $155.6 million.

However, because the top federal marginal tax rate is 37% — which applies to income above $539,900 as a single taxpayer or $647,850 for married couples filing jointly — you could expect to owe more at tax time.

One way to reduce your tax bill is to think charitably, according to the American Institute of CPAs: You can contribute cash, up to 60% of your adjusted gross income, to a public charity or a donor-advised fund and get a tax deduction for the amount in the year you make the donation. You could also create a private foundation, donate income to it and then determine over time how to deploy the money. 

If you had no reduction in income, another 13%, or $84.2 million, would be due to the IRS ($239.8 million in all).

That would reduce the windfall to $408.4 million.

There also could be state taxes either withheld or due. Unless you live where there’s no income tax or lottery wins aren’t taxed, those levies could be more than 10%, depending on where you bought the ticket and where you live.

Nevertheless, even after a big tax bill, the windfall would be more than most people see in a lifetime. It’s recommended that jackpot winners assemble a team of professionals to help navigate the claiming process, including an attorney, financial advisor and tax advisor.

Meanwhile, the Powerball jackpot is an estimated $170 million for Saturday night’s drawing. Your chance of winning the top prize in that game is about 1 in 292 million.

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