April 15, 2014 – Today is the day – tax accountants can emerge from the mountains of paper piled on their desks, the stress of filing has been lifted from shoulders nationwide, it’s like an unofficial kick-off to spring and summer, the carefree months of the year.
For the government, tax season is a bit like a drawn-out lottery win, alleviating (hopefully) the costs of running a country. Conversely, for lottery winners, taxes can take quite a chunk out of any winnings, maybe putting a damper on some of those jackpot daydreams.
This year was a record-breaking one for lottery wins. One of the largest jackpots in U.S. lottery history, a Mega Millions prize worth nearly $650 million, was won Dec.17, 2013 by two winners. The same night another 20 players became millionaires and more than 600 players won $5,000.
Another record prize, a $590.5 million Powerball jackpot won May 18, 2013 was the largest ever claimed by a single winner. Along with that winner, Gloria C. Mackenzie, another 33 players became millionaires that night, including two who won $2 million prizes.
Alone, the top winners from these two drawings generated about $285 million in federal income taxes, as those giant winnings skyrocketed the winners to the top of the tax bracket.
Each winner had to write a check for 39.6 percent of their income – mostly the jackpot win – for the year. Gloria Mackenzie would have paid about $147 million on her $370.8 million cash option. Ira Curry and Steve Tran, who split December’s Mega Millions jackpot, would each have to pay about $70 million on their $173.8 million shares of the jackpot’s cash option.
And how about all those new millionaires- second-prize winners in Powerball and Mega Millions?
Powerball has, on average, made nine new millionaires each week over the past two years, and Mega Millions has made four new millionaires each week since changes to the game’s prize structure went into effect in mid-October.
That makes for nearly 600 new millionaires this year thanks to Powerball and Mega Millions, each one also pushed into the top tax bracket by their big wins. The tax burden for people in that top bracket is actually 39.6 percent of their earnings over about $405,000, plus a $118,000 payment.
For each of the nearly 600 winners, this would mean writing a check for more than $353,000, leaving a little less than $650,000 of their winnings left. That is, of course, before they pay their state taxes, too.
Altogether, the 588 new millionaires would have generated more than $200 million in income taxes for the government.
What’s the lesson here? Is it that winning the lottery can be a headache – no, definitely not! If I had won a million bucks yesterday, I would have gladly paid an accountant to do all this math for me today.
No, the lesson is that everyone’s gotta pay taxes. Let’s just be happy it’s over and forget about that fact until next year. It’s almost summer, after all.