According to The Sun, A lottery player experienced a windfall of $1 million after purchasing a $50 scratch-off ticket at a Publix supermarket in Orlando, Florida. Corbblin Dixon beat the odds of approximately one in 274,000 to claim the second-place prize. However, his good fortune came with a hefty price.
The Lump Sum Decision
Dixon had the option to choose how he wanted to receive his prize. He opted for the lump sum payment, which meant he walked away with $640,000. This decision cost him $360,000 upfront, according to The Florida Lottery.
While the odds of winning any prize in the lottery are about one in 4.23, the Publix store also benefited from the win, pocketing $2,000 from the sale.
Tax Implications
As his winnings exceeded $5,000, Dixon is subject to a federal tax rate of 24%. While winners must report their earnings, which can push them into a higher income tax bracket depending on the total amount, Dixon is fortunate that Florida does not impose a state tax on lottery winnings.
Florida is one of the few states where lottery winners can keep their full amount without state taxation. Other states with similar rules include California and Texas. New Hampshire, South Dakota, and Tennessee also do not tax lottery prizes.
Varying Tax Rates Across States
Conversely, some states have significant state tax rates on lottery winnings. For instance, in New York, winners must pay a tax rate of 10.9% in addition to federal taxes. Similarly, Maryland, New Jersey, and Oregon impose rates of 8% or more on lottery prizes.
These varying tax rates are crucial considerations for winners when deciding between a lump sum and an annuity payment structure.
Annuity vs. Lump Sum
The annuity option, while less popular, allows winners to receive staggered annual payments over several decades. For instance, Mega Millions winners receive an initial payment followed by 29 annual checks, each increasing by 5% from the previous year.
Also Read: Food Recall Alert: Listeria Contamination Impacts Schools Nationwide
Risks of Taking a Lump Sum
Financial expert Robert Pagliarini advised that opting for a lump sum comes with significant risks. “If you take the lump sum, you have to realize that if you start making mistakes or bad investments, there’s no do-over,” he warned. “It’s not like you are going to win the lottery again. You have one shot at this.”
In contrast, Pagliarini noted that choosing the annuity option provides winners with more flexibility to navigate potential financial missteps in the years following their win.
Lotto lawyer Andrew Stoltmann highlighted that about 90% of lottery winners mistakenly choose the lump sum option, which can lead to regrettable financial decisions.
- COVETED COIN: Rare coin ‘breaks world record’ selling for $2.52 million at auction – historic detail that ups its price tag - November 21, 2024
- Trump Stimulus Checks: Will You Receive One in 2024 or 2025? - November 21, 2024
- Social Security checks worth $4,873 automatically going out next week – with just three left this year - November 21, 2024
