Posted on 01/28/2016 11:55:14 AM PST by MichCapCon
If you win the Powerball in Michigan, don’t be surprised to discover some "partners" sharing the pot with you: state and federal tax collectors. Here’s how much they will scoop off the top in taxes, as calculated by Joe Henchman, vice president of legal and state projects at the Tax Foundation.
The winner will have 25 percent withheld automatically by law for federal taxes and the state withholding tax. In Michigan, the state income tax rate is 4.25 percent.
When the winner files their taxes next year, they would have to pay again — the difference between what was withheld and what they owe.
The current jackpot is $1.5 billion (and not split between multiple winners), with the lump-sum option paying out $930 million. So off the bat, the federal government will take $232 million through withholding, and Michigan will take $40 million.
The winner would get a check for $658 million, but come tax time next year, will owe another $136 million to Washington. That leaves $522 million in true take-home money after all the taxes are paid, or about 34.8 percent of the headline-grabbing $1.5 billion.
Also, Henchman notes that if anyone wants to share their lottery winnings with friends or family, anything over $14,000 in one year or $5.45 million over a lifetime is taxed at the gift tax rate of 40 percent.
Wow that much !!!
$522 MM
IF
you take the lump sum. At this level of reward, one is always more prudent to agree to the state-driven annuity.
"Gubmint do take a bite, don't she?"
“Current” jackpot? The $1.5864 billion jackpot was won on January 13th by winners in California, Tennessee, and Florida.
Wouldn’t you be able to say that the ticket was a ‘collective purchase’ and be able to avoid the gift tax?
“Michigan will take $40 million. “
Which will all get tossed at Flint.
Depends on if a future Congress hikes the current top rate.
Ones life expectancy as well.
With the outlay of $1, I think I could settle for $522 million with a smile on my face. That would last me the rest of my days, in style, with plenty left over for my kids.
In the end, I would still be out of pocket, only $1.
Yep, If you can’t live on $50 million a year before taxes, you don’t deserve the money.
You can't guarantee that the state lottery commission or the insurance company that issues the annuity will ever fulfill their promise. Only a fool would trust a state entity or an insurance company on a promised future payment that large.
“anything over $14,000 in one year or $5.45 million over a lifetime is taxed at the gift tax rate of 40 percent.”
That’s what suitcases are for.
Kinda depends on how old you are. And I don’t think the annuity is part of your estate. It dies with you.
I’d take the lump sum. $522M I can live with. LOL
I always figured it’s roughly 1/2 the lump sum payout - pretty close
Taking the annuity is the equivalent of a mere 2% return. You can invest better that.
Only if you claimed as much when claiming the prize. Then all your relatives would be on the hook for their share of the taxes.
Cash a big check and buy a suitcase.
It could be less than that, depending on where you live.
First, the NPV of a $1.5 billion payout is $930 million. If you were a New York City resident:
Amount 930000000
NY State income tax 82026000
NY City income tax 36027545
Federal income tax 358887205
Total tax 476940750
Tax percentage 51.28%
Amount received 453059250
Thanks. No. One would be more prudent to understand there are uncertain things. I can invest that same $522 M and have more in pocket after 29 years, than I'd get having someone else pay me 30 equal payments. Not only that, but given the way things are going these days, it's a good possibility those payments may stop quite a bit sooner than the 29-year payout.
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