It’s gone up again! The estimated jackpot for tonight’s Mega Millions drawing now stands at an estimated $830 million annuity, $487.9 million cash option.
It’s now the 3rd-largest jackpot in Mega Millions history, and the 4th-largest jackpot ever offered in the United States. (The record jackpot in the Mega Millions game was $1.537 billion, won in October 2018 in South Carolina.)
When the jackpot reaches this level, it becomes harder to predict the estimate heading into the next drawing. Stronger sales mean the jackpot will go even higher, and that’s what happened this week! The initial jackpot estimate was raised yesterday, then raised again this morning. I think it’s safe to say a whole lot of people are dreaming about a big win.
With all the buzz, a lot of folks have reached out to us with questions about cash vs. annuity, and the tax implications of winning the jackpot. Here are details to clear up a few misconceptions we’ve heard:
1. The cash option is NOT the annuity amount minus taxes. They are separate amounts. Here’s why: If the player chooses the annuity option (currently estimated $830 million), they receive 30 payments over 29 years that add up to the annuity total. The cash on hand in the jackpot pool from the sale of tickets in the game is invested in securities, and the winner receives payments over time. The initial amount invested + the interest generated by the investment adds up to the total annuity amount. Withholdings are applied to each payment that the winners receives. If a winner passes away, the money goes into that person’s estate. The lottery will make future payments as determined by the estate or the court.
2. If the winner chooses the cash option (currently estimated $487.9 million), they receive the lump-sum amount in the jackpot pool from the sale of tickets in the game. There is no interest that is generated because the money is not invested. Another way of putting it is that the “rest of the money” does not exist in that scenario. The winner receives the lump-sum amount in one payment, with withholdings applied to that entire amount.
3. Here in Iowa, 24 percent federal withholding applies to a jackpot prize along with 5 percent state withholding. The federal withholding rate is universal across the country, but state withholding rates vary, so check with the lottery where you bought your ticket if you have questions about that. Withholdings are automatically applied before the payment is made to the winner. The amount can’t be changed or waived.
4. Withholdings are designed to cover the jackpot winner’s tax liability from winning a large lottery prize. However, the exact taxes that the winner will owe vary from person to person depending upon their individual financial circumstances outside of winning the lottery. In some instances, the withholding is not enough, in other instances, it’s too much. The details will be sorted out in your income taxes for the year. That is why we always encourage our winners to consult a lawyer or financial planner before they claim their prize. Have a plan. Know and understand the details that apply to you!
If you’re buying a Mega Millions ticket for tonight’s drawing, remember that there is a sales cut-off time. Here in Iowa, the sales cut-off is 8:59 p.m. on the night of the drawing. If you buy a ticket after that, you’ll still have a valid play, it will just be for a later drawing and you won’t be in on tonight’s big money. (And yes, there are people who wait too long and miss the cut-off. It’s an automated procedure and can’t be pushed back.)
And as always, remember that it only takes one ticket to win. Please play responsibly.
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