Cash option and taxes

Hi, I'm new here and have been playing Michigan lotto games (mainly classic 47 as my name suggests) for over a month.  I haven't won anything, but I am curious, how much taxes do you have to pay?  On the Michigan lotto website, it says that for prizes over 5000, they deduct about 30% and that STILL doesn't satisfy your tax liabilities.  Does that mean that even after they deduct, you still have to pay taxes on your winnings?  Because if that's true, than you only get half of the prize advertized.

Another thing, for big games like classic 47, you can accept an annual payout over 30 years, or you can accept a lump sum payment, but if you take the lump sum, you only get half the estimated jackpot.  Why is that?  Is what you get after they tax you on it or do you still have to pay taxes even after getting the half?  For example, if I won next saturday's jackpot (estimated 5.2 million), accepting the cash option would mean I'd get 2.6 (still a lot, but not the real jackpot).  Would the 2.6 million I wouldn't get be the money deducted from taxes, because I can't think of any other reason (assuming I'd be the only jackpot winner) why I couldn't get the advertised jackpot. 

Just something that's been bugging me.

The advetised jackpot amount is blatant false advertising.  That is why.

The amount advertised is actually "the total amount paid in an annuity over 30 years".  The cash value up front is actually the cost of that annuity.

If you take the cash value, you pay 35 taxes.  That is the marginal tax rate for income over $372,950.

I don't know why they would take taxes out of a $5,000 prize.   If you are in a tax bracket under 30%, you will get some of that prize money back in the form of a tax refund.

It is false advertising.  I assume this means that if someone accepts a cash option for a 5.2 jackpot, they only recieve about one third of it (1.7 million). 

Damn, that sucks.  The government has their hands in everything these days.  Greedy jerks.

It's NOT false advertisement!If you take the annuity option you will get the entire amount that they advertise,minus taxes every year,it will just take 29 or 30 years to get it all.If you take the cash option you will get whatever the cash option is minus state & federal tax.

The advertised amount is the amount you will get in total over the span of 25-30yrs...depending on the particular game.    There is a link on the left-hand of the site to USAMEGA.    Under the jackpot analysis....it gives you an idea of the bottom-line on what you will get.

The taxes will put you in the 35% tax bracket.   That means excluding your deductions and exemptions....the IRS will get 35% of your money.   The good or bad news is the MUSL withholds 25% of it before they even write you a check.   Obviously 25% is not 35%.  So you still owe the IRS money.  Also depending on your state....you will have to pay additional taxes with your state revenue department.

  That is why it is very important to hire a reputable tax attorney and financial advisor.   They will guide you on your communication with the IRS.   Given the amount that you still owe to the IRS,  you will likely have to pay estimated taxes on a quarterly basis instead of paying the whole debt on april 15th like regular working Americans.   These professionals can help to give the "loopholes" and the best stategies to reduce your tax liability.   Stuff such as charitable contributions, municpal bonds, and other tax options can help you and they will give you futher advice on how to minimize the liability.

Man...then why doesn't USA Mega have the taxes for Federal at 35% instead of 25%? I know they have the NC taxes wrong (it's really higher than 7%).

Hmmm.... well, I guess their reason could be if you take the 30-year allotment instead of cash. Then the amount you receive could be under the bigger tax brackets. Is that the reason?

So as I thought, by taking the cash option, you will only get a little over a third of the advertised jackpot.  You still have to pay taxes even after only getting half your share.  The anuity option looks good for bigger shares, but for smaller jackpots (at least compared to mega millions)

So from what I can tell, winning the jackpot would mean lots of jumping through legal hoops, dodging the IRS, and would probably lead to some financial stress.  Don't get me wrong, it would be WELL worth it even for smaller jackpots like fantasy 5, but I never thought about all the bureaucracy that goes along with that jackpot.  I guess it should be expected with such large sums of money.

If you take the cash option and invest wisely( with the help of a good financial advisor) you can end up with more money than if you take the yearly payments!

The amounts listed in USA Mega only mentions the amount WITHHELD.   Not your final tax burden. 

For example in New Mexico....the state withholds 6%.   However in filing state income returns....the highest tax bracket in our state is 5.3%.  Which means a refund come filing time.  I am sure NC operates the same way.   They withhold a certain amount and the final tax burden can be lower or higher.

Of course it's false advertising. Have you ever paid attention to the ads run by the lotteries? If they don't clearly state that the advertised jackpot is an annuity, and they usually don't, then the ads are false and misleading. If they advertise that "the megamillions jackpot is now $100 million" and they won't give you $100 million (less withholdings) once the ticket is validated, the advertised jackpot was clearly false.

Go to the Powerball website.It clearly states what the jackpot amount is.And it clearly states what the cash option amount is,also.The Mega Millions website does the same.

Winning a taxable amount in any game is like getting income in any other fashion.  The feds take about 25% up front as withholding ... like they do from your paycheck. Then some states also tax lottery winnings while others either do not have an income tax (like Washington) or do not tax lottery winnings.  USAMEGA provides a very good jackpot analysis for both MegaMillions and Powerball with how each state taxes such winnings and what the annuity option would look like for each jackpot.  When/IF you ever win a jackpot the first thing to do (after signing the ticket and jumping up and down with glee for a while) is find a really good financial advisor to help you minimize your tax burden.  It is illegal to EVADE taxes but is is good sense to AVOID taxes. How much more you might owe come April 15th depends on many many factors that the financial advisor can help you figure out.

Perhaps you mean this one that advertises the PB jackpot?  http://www.oregonlottery.org/
Or this one?  http://www.idaholottery.com/
Or this one?  http://www.montanalottery.com/
Or this one?  http://www.arizonalottery.com/
Or this one?  http://www.nmlottery.com/
Or this one?   http://www.sdlottery.org/

Or this MM site? http://www.nylottery.org/index.php
Or this one?  http://www.galottery.com/
Or this one?  http://www.illinoislottery.com/
Or this one?  http://www.michigan.gov/lottery
Or this one?  http://www.valottery.com/

I could list a bunch of others, but maybe you get the idea. Each of those official state lottery website home pages advertises the jackpot at the annuity value, with no mention that it is paid out over a period of 25 or 29 years. That information is buried somewhere else. Making the full information available elsewhere doesn't mean it's not false advertising when they run ads that clearly promote a "jackpot" that isn't really available.

No.I mean the Official Powerball website.  http://www.powerball.com/ & the Official Mega Million website http://www.megamillions.com/whereto/states_il.asp

They both clearly state what the annuity jackpot AND the cash option jackpots are.Having proved my point I will not argue with someone that gets his kicks arguing with everyone who has a different opinion than they do.

One more thing,watch the televised drawings of PB & MM.The hosts CLEARLY announces that the drawing is for AN ESTIMATED ANNUITIZED JACKPOT.