DENVER (KDVR) — The next Mega Millions drawing happens Tuesday night, and with a historic estimated jackpot of $1.58 billion, you might be wondering how much of that you’ll see if you win.
First, you should know that the estimated cash value is $783.3 million, not $1.58 billion. That’s what you’d get if you chose the popular lump sum option.
So, assuming you win, and assuming you take the lump sum, how much would you actually pocket after state and local taxes?
How much taxes are taken out?
The federal government automatically takes 24% in tax withholdings on all prizes over $5,000.
So, at a cash value of $783.3 million, the federal taxes withheld from your prize before you even see a cent would be a little over $187.9 million.
That leaves you with $595.3 million.
And the tax withholdings don’t end there, because Colorado takes 4% of your prize, which in this case works out to around $31.3 million.
So, after that combined 28% in taxes taken out before the cash hits your bank account, you’d take home $563.9 million, over $1 billion less than the jackpot value.
That combined amount isn’t completely gone, it’s just withheld for taxes.
That means when you find yourself facing a high federal and state income tax bill next year, you won’t have to pay the entire amount out-of-pocket.
However, given that most of your winnings would be in the highest federal tax bracket of 37%, you likely will have to pay out millions more come tax season.
How does this stack up to other states?
Each state runs its own individual lottery. Meaning that the rules of the Colorado Lottery aren’t the same as what you’d find in other states.
This is why you are only allowed to redeem your winning ticket in the state it was bought in.
So, if you bought your winning ticket in Colorado, you won’t be able to go redeem it in, say, Texas and take advantage of its 0% state tax on lottery winnings.
Of the 45 states that hold lotteries, eight don’t automatically withhold winnings. This includes California, Florida and Texas, as well as Colorado’s neighbor to the north, Wyoming.
At 4%, Colorado’s lottery takings are relatively low, at least among the states that do automatic withholdings. Only four states — North Dakota, Pennsylvania, Indiana and Ohio — have lower withholding amounts.
But in New York, 10.9% of winnings are withheld, and if you’re in New York City you’ll face an additional 3.876% withholding.