Personal Finance

Dreams of a windfall push Mega Millions jackpot to $200 million

Key Points
  • When the jackpot is won, it could be a while before the top prize climbs this high again.
  • In early April, lottery officials said future jackpots would not come with the standard $40 million minimum.
  • The cash option for Friday night's drawing is $161.8 million, although a 24% federal tax withholding would reduce that amount by $38.8 million.

If daydreaming about scoring a windfall would help you escape the coronavirus doldrums, you might want to buy a Mega Millions ticket.

The lottery game's jackpot has reached the $200 million mark for the first time in almost three months amid slowing sales. And if all six numbers are matched in Friday night's drawing, it could be a while before the jackpot gets this high again.

In response to reduced ticket purchases during the coronavirus pandemic, Mega Millions officials announced in early April that future games' starting jackpots — as well as jackpot increases when there's no winner in a drawing — would be based on game sales and interest rates with no fixed minimum amount. (A similar action was taken by Powerball officials.)

A customer holds Mega Millions tickets at a newsstand in midtown Manhattan in New York, U.S., October 19, 2018. 
Mike Segar | Reuters

Previously, each new Mega Millions jackpot started at $40 million and grew by a minimum of $5 million. Those factors, officials said, will be determined before each game and shared publicly. 

Of course, your chance of hitting the jackpot with a single ticket is miniscule: 1 in 302 million. And, the advertised amount isn't what the winner ends up with, thanks to federal and state taxes.

For this $200 million jackpot, the cash option — which most winners choose — is $161.8 million.

The federal 24% tax withholding would reduce that amount by $38.8 million, to $123 million. However, the current top marginal rate of 37% would mean owing a lot more to the IRS at tax time.

Assuming you had no reductions to your taxable income — such as large charitable contributions — another 13%, or $21 million, would be due to the IRS at tax time (which would be April 2021 for jackpots claimed in 2020).

That would be $59.8 million in all going to Uncle Sam, leaving you with a cool $102 million.

How the Mega Millions and Powerball lotteries work

However, state or local taxes would be on top of that. Those levies range from zero to more than 8%, depending on where the ticket was purchased and where the winner lives. In other words, you could end up paying more than 45% in taxes.

Nevertheless, you'd still be left with what's likely a life-changing amount of money — not a shabby return for a $2 ticket.

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