How the lottery works in the United States (and what happens if you win and you are a foreigner)

How the lottery works – Mega Millions

Mega Millions is the name by which the United States lottery is known. Its presence in 45 states, in addition to the District of Columbia and the Virgin Islands, make it one of the most relevant lotteries within the country, but also outside it. Its dynamic is based on draws that are offered twice a week: on Tuesdays and Fridays at eleven o’clock at night. The only states where, as an exception, this lottery is not played are: Alabama, Alaska, Hawaii, Nevada and Utah. The minimum guaranteed prize is 40,000,000 dollars, which can be chosen after the purchase of a ticket for just 2 dollars.

The operation of Mega Millions is very simple: it is based on choosing five numbers between 1 and 70. Next to this number, one more is chosen (the Mega Ball number), which goes from 1 to 25. On the other hand, if you wish to increase the value of the prizes, you can request the Megaplier ball, which is drawn prior to the main draw, increasing the value of the main draw prize up to 5 times.

It should be noted that the selected number can be obtained arbitrarily, subjecting the choice of the number to random. In this way, the bet is subject to fortune. In turn, to qualify for the Megaplier ball it is necessary to pay 1 euro more than the base value of the ticket, which, as indicated above, is 2 dollars.

The chance of hitting the Mega Millions jackpot is the lowest of almost any lotteries in the world, which makes it extremely exciting. With regard to the rest of the prizes, they are divided into nine categories. The odds of winning a prize are 1 in 24. Occasionally, extraordinary draws are offered that lead to the jackpot being worth up to $970 million. However, when it comes to receiving this attractive amount (or any other Mega Millions prize), the question arises as to how to proceed if you are a foreigner and do not reside in the United States.

Keep reading to find out more on how the lottery works in the US!

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How the lottery works – A brief history

Mega Millions was created in 1996, under the name The Big Game (The Great Game). However, in 2002 it was renamed Mega Millions, the name by which it is known today. Although played in 45 states, the Mega Millions brand retains its exclusivity as the Illinois Lottery.

How the lottery works – Instant Payments or in installments

Mega Millions can be cashed out in two different ways: through a one-time payment, commonly called “lump-sum cash”; or in 30 annual installments, usually known as “annuity”. Depending on the payment method we choose, the amount of the prize will be higher or lower. The first of the differences between one and the other is that one of the two systems reduces the amount of the prize in order to cover the costs that derive from a cash gain of such importance.

In this way, if we choose to collect the prize immediately, in one go, the economic amount is dramatically reduced. The winner would not receive more than 600 million, with which the remaining hundreds would be lost. The other option is to receive the award in installments, but we risk of inflation could harm us in the long term. For this reason, most of the winners choose to receive the economic amount in one go, even if this means losing part of the total value of the prize.

How the lottery works – Treasury intervenes and takes part

The amount of our prize does not go unnoticed by the Treasury, which takes its fixed percentage of the prize: 24%. This is translated as follows: if we have requested the payment of the prize in millions of dollars in installments, we would deduct the 24% that the Treasury would take, as a federal tax, from the annuity of each payment.

The same would also happen in case of requesting the payment in a unique way, in a single amount. 24% from the Treasury would be subtracted from the total, but since it is not paid in annual installments, we would not lose as much money as happens in the installment modality, because the 24% discount would only be applied once and not every year that you collect the installment of the prize.

How the Lottery Works – Other Important Taxes

Each of the states that make up the US has its own local lottery taxes on everything that concerns lotteries. These taxes vary depending on the state of residence. In California, for example, no additional tax is applied to the Federal Treasury. On the other hand, in Maryland, they discount 9% of the total prize. In general terms, it can be said that the discount applied by taxes is on average between 4% and 5% (depending on the state in question).

How the lottery works – After taxes, how much do I have left?

The USA Mega website estimates an average of 22 million dollars per year, if we have chosen the installment payment, and 390 million in a single amount, if we have chosen the single payment. Here we can see how a significant sum of money is lost just in taxes. However, those who really lose more money in taxes are foreigners. We explain it in the next paragraph.

How the lottery works – What happens if I win a prize and I am a foreigner?

To begin with, foreigners do not pay 24% of the US Federal Tax, but this amount is increased to 30%. On the other hand, in addition to said taxes, the taxes of the state where the ticket was purchased are applied, which as we have observed varies, California being the only one in which no added taxes are applied. In addition, to all this we must add the taxes that the foreign State will apply as an added measure to the amount of millions with which we would enter our respective country. Each country applies its own taxes, which are added to the US taxes already mentioned.

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