Winning the lottery can be one of the best things to ever happen in your life and one of the easiest ways to earn money from home. If you manage to bag a jackpot of 1.5 billion USD—you can easily start working on something of your own. Or better yet, not work at all—though we would advise against it!
While winning the jackpot prize of a million dollars may not be a certainty—one of the things that are certain in life is taxes. If you manage to beat the high odds and win yourself a staggering 1.5 billion dollars, chances are you’re going to have to pay taxes before even taking a look at the whole cash prize.
Taxes on Lotto in America
The federal and the state government of America consider the lottery winnings as general taxable income as the same for your annual salary and wages. The lottery winners must record the exact price in full of the winnings and the tax return they receive each year.
How are the Lottery Winnings Taxed?
As with your salary and wages coming from your employer, IRS asks the lottery service provider to withhold 25 percent of the lottery winning amount. The rest of the taxes will be deducted when you’re prepared to file for a tax return. The tax is charged based on the federal tax bracket for progressive assets, so you won’t have to pay the same amount every time.
The highest tax rate on the highest winning amount is 37 percent, depending on the state you’re at and the state you bought the ticket from.
What are the Options?
You can decide how you want to take the money. Most financial advisors may advise acquiring the lump sum payout option, while others prefer the annuity payment option.
The better one between the two depends on your preferences with what you want to do with the money. The lump-sum payout allows you to withdraw your money with an estimated figure. For example: if you win the jackpot of 1.5 billion US Dollars, the winning would be around $930 million. You will then have to pay your annual taxes according to your own number of assets.
The annuity plan allows you to take your winning amounts in the form of annual installments. This process is stretched out to 29 years and leaves you with more money in the long run—considering the accrual on the interest you receive 29 years after your win.
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