As reported by Newsmax and about a million other news outlets, lottery fever swept the country when the Mega Millions Jackpot rose toward a record $656 million for the March 30th drawing. Do you know what the taxes are on that much money? Here comes the math 101 lesson in subtraction.
First, there is a 25 percent federal withholding tax - minimum. Next April, winners will see if they get a refund or pay more taxes - any guesses on how that is going to work out? Then if one lives in a state with an income tax, that amount is subtracted. New Jersey has a 10.8 percent tax and New York’s income tax is 8.97 percent. Plus, if you live in New York City, there is 3.648 percent city tax.
Is your calculator smoking from subtracting yet?
And, get this, state lotteries pay on average about 60 percent of gross revenues in prizes. That compares to about 90 percent payback for most casinos, according to The Tax Foundation. So, they say, "To the extent lottery revenue is used for general government purposes, it is a tax." I knew that.
Ready for even more subtraction? There’s going to be more relatives and friends that you ever dreamed of, wanting a "little" help.
We know that there were three winning tickets, but let’s look at what would have happened if there was only one ticket and it came from New York City. The up front taxes would be about $243 million.
After your mother-in-law gets her cut, there ain’t going to be a whole lot for you.
The way to make a small fortune in gambling, is to start with a large fortune.
PMO
©2011
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