A California Mega Millions winner holding a $1.22 billion ticket could lose hundreds of millions of dollars in taxes when claiming the prize.
The winning ticket was purchased at Sunshine Food and Gas Station in Cottonwood, about 146 miles north of Sacramento. This jackpot is the fifth-largest in Mega Millions history, following three months of rollovers.
The player now faces a difficult choice on how to claim the prize. They can take a lump sum payment of about $549.7 million, which would wipe out nearly half the jackpot immediately.
Alternatively, they could choose the annuity option, which pays the full jackpot over 30 years in gradually increasing installments. Despite this, most winners prefer the lump sum, including Edwin Castro, who won a record $2.04 billion in 2022 but took home $997 million after taxes.
If the winner selects the lump sum, they will face a federal tax rate of 24%, costing roughly $132 million. Because the prize is so large, the winner may also owe the top federal income tax rate of 37%, adding about $70 million more.
However, the winner has a significant advantage: California does not tax lottery winnings. This is a relief compared to states like New York, where lottery winnings face a 10.9% state tax.
Other states with high lottery taxes include Maryland, New Jersey, and Oregon at 8%. Only a few states, including California, Florida, South Dakota, Tennessee, Texas, and Wyoming, do not tax lottery prizes.The winner’s decision will have a massive impact on how much money they ultimately take home.
