What would you do if you won $1.5 billion dollars? That’s exactly what happened for one ultra lucky individual in October. The life of the winner of the largest single ticket jackpot in history will never be the same. What about his or her taxes? We all know the amount of a lottery jackpot is never the actual take-home amount.
Even if the winner chooses the annual payment, he or she will still have to give a large portion to the IRS. If the person selects the lump sum he or she will get $877 million upfront. Not bad.
But then come the taxes. So how will the Tax Cut and Jobs Act affect the winner’s actual take-home amount? For starters, before the new law the highest tax rate was 39.6 percent. Now it’s 37 percent. That’s a saving of about $23 million. On the other hand, the state and local income tax deduction is now limited to $10,000. Previously, there was no limit. That would cost the winner as much as $64 million.
However, the actual amount of that deduction would have been limited to about $35 million, meaning a federal tax bill of about $14 million. Thanks to the $23 million saved from the new lower 37 percent tax rate, the net gain would be $9 million.
The other law affecting the final take-home amount is the estate tax exemption, which increased to $11.18 million for each individual. This would save a married couple about $4.5 million in taxes. So, if you add up the numbers, the new tax law will likely save the winner about $13.5 million, when compared to the old law.
No matter how you slice it, this ultra lucky lotto winner is now a very wealthy individual.