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Someone hit the $267 million Mega Millions jackpot. Here's the tax bite

Someone in New Jersey woke up an awful lot richer on Saturday.

Lottery officials are required to withhold 24 percent of big lottery wins for federal taxes. And that’s only the start of what the winner will fork over to Uncle Sam.

“That withholding is nowhere near enough,” said Ed Slott, a CPA and founder of Ed Slott & Co. in Rockville Centre, New York. “You’d have to set aside a lot for taxes.”

Winners get to choose whether to take their money as an annuity over three decades or as an immediate payment. Most choose the upfront cash, which for this jackpot is $ 161.7 million.

The 24 percent federal withholding would reduce that cash option by $ 38.8 million to $ 122.9 million. However, because the top federal tax rate of 37 percent applies to income above about $ 510,000 for single tax filers ($ 612,000 for married couples filing jointly) the winner can count on owing more — a lot more.

For illustration purposes: If the winner had no reduction in income — for example, significant charitable contributions from the winnings that reduced taxable income — another 13 percent, or $ 21 million, would be due to the IRS ($ 59.8 million in all).

And that’s before the state claims its share. In New Jersey, big lottery winners have 8 percent withheld for taxes. In this case, that would mean about $ 12.9 million going to state coffers.

In other words, the winner can expect to pay at least 45 percent in taxes.

Meanwhile, there’s still $ 348 million up for grabs in Powerball’s Saturday night drawing. That jackpot has been rolling since late December. Your chance of winning is about 1 in 292 million.

More from Smart Tax Planning:
What to do with that tax refund ‘windfall’
After slow start, tax refunds are ticking up
Here are ways you can trim your 2018 tax bill

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