Depending on where you live and where you bought the ticket, state and local income taxes further reduce the winnings.
"In New York City, you pay federal, state, county and city taxes," Susan Bradley, a certified financial planner, told CNBC earlier this year. Bradley is also the founder of the Sudden Money Institute in Palm Beach Gardens, Florida, which helps consumers make the most of such windfalls.
Tallied up, a state and local tax bill could shave as much as another 15 percent — $57 million — off the lump sum, she said. That reduces your net winnings to as little as $172.5 million. (State withholding rates on lottery prizes vary, so some of that may need to be planned for as another tax bill come due next April.)
The luckiest Mega Millions winner would be someone who is a resident of Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming — those states participate in Mega Millions but do not have a personal income tax. California and Pennsylvania also exempt lottery winnings from state income tax if you bought the ticket in state, according to lottery information site USAMega.com.
Generosity could result in Mega Millions winners taking home even less. If you anticipate sharing the prize money, make that agreement before the numbers are drawn (as you would with an office pool) and divide ownership of the ticket before claiming the prize, said Labant. Otherwise, the money is a gift rather than income for those recipients, she said — meaning you, the giver, will be the one paying all the income taxes as well as any gift taxes resulting from a substantial split.
Triggering the gift tax is easy to do with such a big prize. The IRS allows you to gift up to $14,000 per recipient each year, tax-free, with bigger gifts eating away at your lifetime exemption of $5.45 million. (Gifts to a spouse are unlimited.) Exceed that, and the gift tax is a flat 40 percent.