In a stroke of unbelievable fortune, Jeanne, a Sandusky, Ohio resident, won $15 million within the state’s fiftieth Anniversary scratch-off game this past June.
Describe when Jeanne told the Ohio Lottery Commission that she had “dropped to the ground” after realizing her win. At the shop, the clerk and Jeanne had cried together, leaving bystanders wondering what on earth had just happened.
Don’t Miss:
While $15 million might look like a life-altering sum, Jeanne’s final payout will likely be much less as a consequence of taxes, leaving her with around $4.5 million. It is a classic example of a lottery winner facing a major reduction in winnings after taxes – a difficulty many winners don’t see coming.
Jeanne had the choice of receiving $600,000 annually over 25 years (which totals the advertised $15 million) or a lump sum of around $7.5 million. She selected the lump sum. In line with Moneywise, Jeanne will likely be left with around $4.5 million after paying federal and state taxes, a far cry from the headline-making prize.
Trending: These five entrepreneurs are price $223 billion – all of them imagine in a single platform that gives a 7-9% goal yield with monthly dividends
So, why is there such an enormous difference between the $15 million jackpot and her final earnings?
The IRS requires lottery agencies to withhold 24% of any prize over $5,000. For Jeanne, that meant $1.8 million was withheld for federal taxes from her $7.5 million lump sum. However the story doesn’t end there.
Since lottery winnings are taxed as atypical income, Jeanne’s windfall pushes her into the very best federal income tax bracket of 37%. This implies her total federal tax liability rises to roughly $2.73 million, Moneywise reported.
State taxes also take a bite out of Jeanne’s winnings. Ohio taxes lottery income at 3.5%, which implies Jeanne will owe around $262,000 to the Buckeye State. Jeanne’s total tax burden is almost $3 million, leaving her with just $4.5 million. It’s not bad for a $50 scratch-off, but removed from the $15 million advertised.
Given these eye-watering deductions, one might wonder if Jeanne must have opted for the annuity. Would she have taken home extra money in the long term?
By selecting the $600,000 annual payment for 25 years, Jeanne would receive the complete $15 million over time. Her tax burden can be unfolded and he or she’d pay yearly taxes based on her income.
Trending: Studies show 50% of consumers think Financial Advisors cost way more than they do — to debunk this, this company provides matching without spending a dime and a complimentary first call with the matched advisor.
In 2024, which means she’d owe roughly $180,000 in federal taxes and $20,000 in state taxes on the primary $600,000 installment, based on current tax brackets. Nonetheless, tax rates could shift over the subsequent 20 years, potentially lightening her tax load if Ohio’s proposed income tax elimination passes.
Many financial experts advocate for the annuity option because it ensures a gradual income stream. In line with certified financial planner Michael Kitces, annuities can reduce the chance of quickly burning through a lump sum. Regular payments help prevent financial risks.
That said, the lump sum offers immediate financial freedom, likely why Jeanne selected it. Many winners use lump sums to repay debts, buy homes or put money into growth opportunities.
But as tempting as immediate access to thousands and thousands could be, experts warn that having a plan in place is crucial. Without solid financial advice, it is simple for winners to blow through their money faster than they think.
Read Next:
Up Next: Transform your trading with Benzinga Edge’s one-of-a-kind market trade ideas and tools. Click now to access unique insights that may set you ahead in today’s competitive market.
Get the newest stock evaluation from Benzinga?
This text Ohio Woman Scores $15M Lottery Win, But A Huge Tax Bill Means She May Only Take Home $4.5M – Here’s Why originally appeared on Benzinga.com
© 2024 Benzinga.com. Benzinga doesn’t provide investment advice. All rights reserved.