Lottery winners often make news for the huge amounts of money they win, but that’s not always how much they take home. The lucky person from New York who won $10 million in a scratch-off game had to give away almost half of the money.
When Sabina Ospino won the prize in August after buying a $30 ticket at a local deli, she chose to get her money, which is what most lottery winners do. It did leave her with a little more than $6 million, though, after taxes took the rest.
Beating the Odds But Losing Money to Taxation
One of the last five $10 million prizes in the 200X scratch-off game was won by Ospino from Jackson Heights, Queens. She got the ticket from a deli in Jackson Heights, which got extra money when she won.
She beat the very low odds of one in 3.5 million, and she chose to get her prize in the form of a one-time lump sum payment.
These choices cost her a lot because, after taxes were taken out, she only got $6,122,400, according to the lottery officials. If she had chosen to receive the prize in installments, she would have been sure to receive the full amount.
A report from The Sun US says that Ospino had to pay federal taxes on 24% of her prize money. She also had to pay New York State taxes of 10.9% and New York City taxes of 3.876%.
The government always wins.
No matter how lucky a person is, they will have to pay taxes on their lottery winnings. Another report from Smart Asset says that the IRS usually takes 25% of the prize money before the winner can get any of it.
Also, depending on where the winner lives, up to 13% could be taken out for state and local taxes. The top tax rate in the US is 37%, so winners may owe a lot more than that.
It’s important to remember that when the Powerball jackpot reached an estimated $1 billion last year, the winner could only take $516.8 million home all at once.
Of course, this was just the pre-tax estimate. According to CNBC, the winner had to pay 24% more to the IRS, which took an extra $124 million away from the prize.
Thus, taking the annuity payments could seem like the better option but the best move for a lottery winner could be hiring a financial advisor to formulate tax saving and investment strategies.
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