The New Jersey winner of the massive Mega Millions jackpot advertised as being worth $1.13 billion is in for some sticker shock on the tax bill.
The final take home amount will likely be staggeringly lower.
To begin with, the cash option of the final jackpot — actually $1.128 billion per Mega Millions officials — is worth $536.6 million. With only the rarest of exceptions, jackpot winners have overwhelmingly chosen the cash lump sum option rather than the annual payments.
Then the IRS gets a big bite — 24% — or more than $128.7 million according to the New Jersey Lottery. Finally, New Jersey receives another 8% in state taxes — more than $42.9 million will go into the coffers in Trenton.
That leaves the winner with about $364,888,000 with the cash option after taxes — an embarrassment of riches, to be sure, but significantly less than the estimated jackpot.
And the tax hit isn’t quite done yet. Since the winner will almost certainly move into the highest possible tax bracket, he or she will also be subject to higher income taxes.
There is a way to get closer to the full amount of nearly $1.13 billion, but it would take 30 years by taking the annuity route.
Someone who wins the jackpot and chooses the annuity receives one immediate payment and then 29 annual payments, each of which are 5% more than previous year, according to Mega Millions officials.
The first net payment after state and federal taxes would be $8,928,556 with the amount climbing to $17,636,957 by year 15 and $36,620,854 in year 30, the last year of payments, according to USAMega.com.
If a winner takes that path, he or she would receive $591,679,367. The actual amount could, of course, be much higher once interest accrues and with sensible investments.
Lottery officials recommend that winners consult with financial planning experts.
New Jersey Lottery officials declined to comment on those figures Thursday.
It’s also worth noting that if tax rates increase during the term of the annuity, then taxes are withheld at the rate that is in place at the time of the scheduled payment, a New Jersey Lottery spokeswoman explained in 2022.
The lucky, jackpot-winning ticket was sold at ShopRite Liquors on Route 66 in Neptune Township.
Tuesday also marked the first Mega Millions jackpot won in New Jersey since July 24, 2020 when someone who purchased a Mega Millions ticket in Bayonne won the $123 million jackpot.
There have been 26 jackpots won in New Jersey since Mega Millions began in 2002. There were four New Jersey jackpot winners in both 2007 and 2013.
The Powerball has been hit 11 times in the Garden State.
The odds of a $2 Mega Millions ticket matching all the winning numbers (five numbers plus the Mega Ball) are 302,575,350 to 1. Players have a 1 in 12,607,306 chance of a ticket matching five numbers, but not the Mega Ball and winning at least $1 million.
Mega Millions drawings are held on Tuesday and Friday in 45 states, along with Washington, D.C., and the U.S. Virgin Islands.
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Jeff Goldman may be reached at [email protected]
