If you’ve won the jackpot in a lottery, what will you do with the money? You’ll either receive a lump-sum payment of $602.5 million, or an annuity, which will provide you with $1 million payments every month. Then, there’s the question of how to deal with state taxes. If you choose to take your winnings in cash, there are a few things you should keep in mind before you cash in on your prize.
If you win the jackpot, you’ll receive a lump-sum payment of $602.5 million
Depending on your state, you might also be liable to pay additional taxes. Depending on your circumstances, you may be required to pay an extra 8% of your lottery winnings. Those taxes could add up to a significant percentage. Fortunately, there are several ways to minimize your tax bill. In this article, you’ll learn about some of them.
If you opt for an annuity, you’ll receive a monthly payment of $1 million
If you have a million dollars in a savings account, and you purchase an annuity, you’ll begin to see a steady stream of payments from the money. Your payments will depend on the type of annuity contract you select and how long you invest. For example, if you decide to purchase a lifetime annuity, you’ll begin receiving payments at age 65, while a 60-year-old man will receive $4990 a month, while a 70-year-old man would receive $6,420.
If you keep your winnings as cash, you’ll pay a possible state tax on the prize
If you’ve won the lottery, or won anything else that involves money, you may be wondering how to deal with tax issues related to the winnings. First of all, it’s important to understand that only certain damages are tax-free, such as physical injury or sickness. According to the tax code, 26 U.S.C. SS 104(a), all prizes are subject to state tax.
If you take your winnings as an annuity, you’ll pay a possible state tax on the prize
While lottery winners can choose to take their winnings as cash, they should be aware of the tax consequences of doing so. The state where the lottery ticket was purchased will withhold taxes at their rate. Depending on the amount of prize you win, the total amount you have to pay to the state could be as much as 50% of the prize. If you choose to take your winnings as an annuity, you may have to pay state income tax on your prize each year.
If you keep your winnings as a house or yacht, you’ll pay a possible state tax
If you keep your winnings as a yacht or house, you’ll be subject to state taxes if you live in a state that collects income tax. If you win the lottery and keep your prize as a house or yacht, you’ll likely avoid paying state taxes altogether, but you will still be subject to a state tax if you do.