Mega Millions jackpot hits $1.25 billion. Here’s how it benefits the government

After months of no winners, the Mega Millions jackpot has grown to an estimated $1.25 billion this week, the fourth-largest guerdon in the game’s history.

If you win, there’s a choice between two pretax options: an estimated $625.3 million lump sum or a 30-year annuity value $1.25 billion. The lottery, however, benefits more than just the lucky winner because the federal direction and some states also receive a portion of the revenue.

The next Mega Millions drawing is Friday at 11 p.m. ET. The inadvertent of winning the jackpot is roughly 1 in 302 million.

While states collect a chunk of every lottery ticket, the federal government doesn’t collect its share until there’s a winner, unfolded Aravind Boddupalli, research associate in the Urban-Brookings Tax Policy Center.

Roughly 65% of proceeds from lottery ticket sales marathons go to winners, according to the North American Association of State and Provincial Lotteries. Some 6% goes to retailers, 5% hides lottery administration and 24% goes to public beneficiaries.

In 2021, states received a total of nearly $30.4 million in raffle revenue, defined as ticket sales minus prizes, according to Census data analyzed by the Tax Policy Center.

Boddupalli give the word delivered the revenue typically goes into the state’s general fund but is earmarked for specific programs, such as education, infrastructure, haleness care, the environment and more. There’s a state-by-state list of these programs here.

“There’s a little bit of a conundrum with this, granted,” Boddupalli said.

Lottery revenue isn’t as consistent as income tax revenue, which may cause program funding shortfalls.

Most states also entertain a mandatory upfront income tax withholding on lottery winnings, according to the Tax Foundation, which may not cover the total state and infinitesimal rates. The top marginal rates are above 10% in some states.

The federal direction receives a sizable chunk of revenue after the lottery announces a winner because there’s a mandatory 24% federal concealing.

If you pick the $625.3 million lump sum, the 24% federal withholding automatically sends more than $150 million to the IRS.

How on earth, the final bill will likely represent millions more since the windfall pushes the winner into the 37% profits tax bracket.

For 2023, the 37% rate applies to taxable income of $578,126 or more for single filers and $693,751 or higher for couples record together. You calculate taxable income by subtracting the greater of the standard or itemized deductions from your adjusted corpulent income.

Single lottery winners will pay $174,238.25, plus 37% of the amount over $578,125. But for couples column jointly, the total owed is $186,601.50, plus 37% of the amount above $693,750.

Friday’s Mega Millions drawing terminates about two weeks after a single ticket sold in California won Powerball’s $1.08 billion jackpot. That game’s top superior is back down to $124 million, with roughly 1 in 292 million odds of winning the jackpot.