Kinda has a stench of "the wealthy get taxed too much 😢"
The IRS doesn't get that money. The IRS processes that money and prevents your lottery-ticket-buying-ass from hoarding it all, and redistributes some of that unnecessary wealth to the utilities and services were all invested in together as a society.
This is what happens if you take it out as a lump sum. If you choose to take your winnings over an extended period of time (20 years or something), it is taxes more like income.
The poor smuck probably claimed the lottery as an individual. He should have opened a company and claimed the ticket so that he can expense out a lot of his taxable income
/s
I am 99% sure this is not how it will work in this specific scenario but does otherwise when it’s business as usual.
So we do all realize that advertised jackpots are annuitized amounts and that the vast majority take the net present value lump sum, which is usually about half the advertised amount, right?
Winner probably got about six hundred million, of which roughly forty percent was taken for taxes give or take state income tax rates.
That takes something from being completely unreasonable to be understandable.
Why would taxing a gross income of above a billion US$ by ~66% be "completely unreasonable"? Imo taxes for such incomes should generally be higher if anything.
When you win the lottery you have two options:lump sum or annuity. If you take the lump sum you basically get half the advertised amount and then pay taxes on that. If you take the annuity, you are paid out over 30 years and you pay taxes on each payment. It's also setup where they pay you more each year over the pay period.
If you go to USA Mega, you can see jackpot analysis for PowerBall and Mega Millions where you can see the complete breakdown on the payments.
The $1.28 billion is if you take monthly payments over a term of twenty or thirty years.
Very few people do that.
Instead, they take an up front lump sum payment.
That up front payment is the amount the lottery commission would put into interest bearing bonds to pay out over time, getting to the $1.28 billion.
The lump sum payment is usually about half the amount you would receive if you took payments over time. If this doesn't make sense, it's a tangential discussion on the time value of money and its net present value.
I got six hundred million by cutting $1.2 billion in half since this is casual Internet discourse, and I consider very rough cocktail napkin math for illustrative purposes to be perfectly acceptable.
Just wanted to point out that the audit rates for the rich are higher than normal people.
[Jay McTigue:] Well, as I said, higher-income taxpayers are indeed being audited at a higher rate than lower-income taxpayers. In fact, the highest-income taxpayers, those making $5 million or more a year, right
now are being audited at about 2.3%. Whereas on average the audit rate is less than 1% So there is still a focus on the higher-earning individuals.