Lottery jackpots come with a big tax bite

Brendan McDermid | Reuters

A customer purchases Powerball lottery tickets for a $700 million jackpot at a newsstand in New York City, August 23, 2017.

Based on the federal tax withholding of 24 percent, the IRS gets more than $210 million right off the bat of the $877.8 million cash option that the winner chose (instead of an annuity). The state of South Carolina, where the ticket was sold, gets its own $61 million in taxes.

Separately, someone in New Jersey won the $267 Mega Millions jackpot last Friday. That person (or group of people) has a full year to come forward, so the IRS will have to wait for its piece.

And, of course, someone eventually will win the Powerball jackpot again, as well. Whether the person takes their loot as an annuity spread out over three decades or chooses the reduced lump-sum amount, the IRS will be waiting in the wings for its share.

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