Everyone who buys a ticket thinks they might win a million. Someone does win the lottery. Why not you? (Better yet, why not me?)
In case you do win a million, you need to be prepared to share your luck with your friends at the IRS.
CALCULATION METHOD I USED:
I calculated the tax on a million bucks for four different filing statuses. If you won more than a million the additional money would all be taxed at 35%, but there could be some additional increases since your exemptions phase out after you reach certain levels. And it would certainly keep you from getting an earned income credit.
In calculating it, I did not figure in the effect of exemptions for children or other dependents.
HERE ARE THE RESULTS (using my tax software to grind it out)
If you won a million bucks in the lottery and had no other income or deductions, you would owe:
If single: ... $327,673.................... (32.7673%)
Joint return... $ 318,876............... (31.8876%)
Married Filing Separately 334,438...... (34.438%)
Head of household... $ 323,837 .............(32.3837%)
WHY WOULDN’T IT ALL BE TAXED AT 35%?
You only pay at the 35% rate on income ABOVE a certain level. The first few dollars is not taxed at all due to exemptions and either itemized or the standard deduction. The next level is taxed at 10% and only the incremental increases goes to each higher bracket.
Link to IRS forms and publications:
This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.