(NEXSTAR) — With another record-setting lottery jackpot up for grabs — a $1.55 billion Mega Millions grand prize — it’s hard not to fantasize about being a billionaire. Unfortunately, you won’t become a billionaire right away if you win.
It isn’t just because of how long it takes to validate a winner. Taxes are going to drop you down from billionaire status to millionaire, albeit a double or triple-digit millionaire.
State lotteries are required to withhold 24% in federal taxes on Mega Millions jackpot wins. With additional taxes, about 37% of the prize money will be taken out in total.
Depending on where you live, you could see even more tax withholdings taken from your prize.
New York has the highest state lottery tax withholding on large lottery prizes like the Mega Millions jackpot (some have different tax rates for different-sized prizes, or the taxes aren’t withheld unless a prize is larger than a set value). State law requires the New York Lottery to withhold 10.9%. If you live in New York City, you’ll face an additional 3.876% withholding, according to the state lottery.
These five states have the highest state tax withholdings on large lottery prizes:
The District of Columbia also imposes an 8.5% tax on lottery prizes won in its jurisdiction.
Where a state tax is withheld, the amount is taken automatically. Think of it like your paycheck — federal and state taxes are taken out before you receive the check, and depending on how much you paid, you might owe some or gain some back at the end of the year, the North Carolina Education Lottery explains.
To put it in perspective, let’s say the winner of the $1.55 billion Mega Millions jackpot opts to receive the cash prize of $757.2 million. After federal taxes have been withheld, the prize drops to about $477.1 million, according to an analysis by USA Mega.
If the winner lives and purchased their ticket in one of the states without a state lottery tax, they would receive exactly that payout: $477.1 million. A winner in New York state would receive just $394.5 million.
Tax withholdings will also impact the annuity payout option a Mega Millions jackpot winner could choose. After the 30 total payments have been doled out, a winner in a state without a lottery tax would have about $977.6 million. In New York, they would have about $808.7 million.
Though the annuity option will, eventually, end up being a bigger payout than the cash option, most jackpot winners select the lump sum payments. Some financial advisers say that might be a mistake.
Experts also recommend keeping your winnings a secret from as many people as possible for as long as you can. In some states, that may not be very long — many have laws that require the lottery to at least reveal the name of the jackpot winner.
So even though you’ll have a larger prize if you win in California, Florida, South Dakota, or Tennessee, for example, your neighbors may soon find out about your newfound wealth.
Want to stay anonymous and keep as much of your jackpot as possible? Wyoming has no automatic lottery tax and allows winners to remain anonymous. Winners in North Dakota can also remain anonymous, and the state’s lottery withholdings are just 2.9%.