Billion-dollar Mega Millions jackpot won't trigger $850M IRS bill

CLAIM: The IRS would collect nearly $850 million in taxes from a more-than $1 billion Mega Millions jackpot.

THE FACTS: The winner of the lottery jackpot that sat at $1.1 billion earlier this week, when the claims circulated, would expect to pay at least $135 million in federal income taxes if they choose to receive their earnings all at once, rather than over 30 years. That's still far less than the $850 million claimed online.

Amid the frenzy leading up to Tuesday's Mega Millions drawing, social media users shared posts suggesting the lion's share of such a jackpot will ultimately end up in the federal government's coffers in the form of tax revenue. No one has hit all six numbers in 25 tries stretching back more than two months. The prize now stands at $1.35 billion - the second highest in the contest's history - with the next drawing slated for Friday night.

Danielle Frizzi-Babb, a spokesperson for the Mega Millions contest, says lottery winners can choose between receiving their earnings either through annual payments, or all at once. For a $1.1 billion jackpot, that's a choice between a roughly $569 million lump sum, or annual payments that increase over 30 years, ranging from $16.5 million in the first year to about $68 million in the final year, she explained in an email. The lump-sum payment represents the present-day value of the advertised jackpot, which is based on the total annual payments.

Whatever option the winner chooses, the federal tax rate of 24% is automatically withheld from the payments, according to Frizzi-Babb. For the lump sum option, that means about $136.5 million, leaving the winner with a roughly $432 million payout. The winner would also be subject to additional federal taxes, as well as their state's income tax, noted Robert Pagliarini, president of Pacifica Wealth Advisors, an investment management and tax strategy firm in Irvine, Calif. For example, the massive, one-time payout would put the winner into the top federal tax bracket, as lottery profits are considered regular income by the IRS, he said.

But even with additional federal taxes factored, Pagliarini estimated the jackpot winner would still end up owing the IRS closer to $210 million if they opted for the lump sum - a far cry from the nearly $850 million suggested by social media users. If the winner opts for the annual payments, the total IRS bill would still only come out to around $444 million, assuming the top federal tax rate remains at 37 percent, Pagliarini said.

"The short answer is those Instagram figures are incorrect," he wrote.