It’s a well-known fact that winning the lottery is extremely unlikely. The odds of hitting the Powerball or Mega Millions jackpots are so low that only a handful of fortunate people win each year. It’s way more likely for someone to become a saint officially recognized by the Catholic Church than it is to hit the jackpot.
However, winning the lottery doesn’t necessarily mean hitting the jackpot. There are a ton of prizes offered by Powerball or Mega Millions other than the big jackpot.
The best odds for winning any money are in various state-based lotteries. You can still be a lottery winner even if you don’t win a few hundred million dollars.
Winning a record-setting grand prize will usually mean you’ll be set for life. You’ll probably never need to worry about receiving government benefits. On the other hand, winning a smaller prize can cause you to lose eligibility for benefits that you might still need.
Which Benefits Are Affected by Winning the Lottery?
The United States government has several programs designed to help citizens in need. These various programs help individuals who qualify cover the costs of food, housing, health care, and other basic living expenses. Each program has strict requirements that you must meet to maintain eligibility.
Usually, the criteria are based on your monthly income and assets. Since winning the lottery will profoundly affect your finances, you'll likely have some or all of your benefits impacted.
These are a few benefits offered by the government and how winning the lottery might affect your eligibility:
Social Security Retirement Benefits
Social Security Retirement Benefits replace a percentage of your pre-retirement income based on your lifetime earnings. The percentage is based on the highest 35 years of earnings and will be affected by how much you earned and when you started receiving benefits.
A portion of the taxes you’ve paid during your time in the workforce goes into this Social Security trust fund. It’s not a savings account, but you will have been paying for these benefits for decades. As a result, the money you make after retiring is almost irrelevant to your eligibility.
You should still be eligible to receive retirement benefits even after winning the lottery. However, that doesn't mean that there will be no effect on your benefits. You’ll still have to file an annual tax return even as a retiree.
Winning the lottery can mean that your retirement benefits get taxed at a higher percentage. For example:
- An individual tax return with an annual income between $25,000 and $34,000 can pay an income tax on up to 50% of their retirement benefits. Annually making over $34,000 can result in up to 85% of the benefits being taxed.
- A joint tax return with an annual income between $32,000 and $44,000 can pay an income tax on up to 50% of their retirement benefits. Annually making over $44,000 can result in up to 85% of the benefits being taxed.
Social Security Disability Insurance
Social Security Disability Insurance (SSDI) helps disabled individuals receive financial assistance. SSDI is based on your work record before becoming disabled and your current monthly income.
SSDI benefits get provided because your disability prevents you from earning enough to cover basic living expenses. If you make more than these upper limits each month, you’re engaging in substantial gainful activity (SGA). The current threshold for SGA is:
- $1,350 monthly for non-blind individuals
- $2,260 monthly for blind individuals
If you’re on SSDI and make more than your qualifying upper threshold, your benefits could be frozen until your income meets the requirements. The good news is that one-time financial windfalls such as gambling/lottery winnings, inheritances, or legal settlements aren’t generally considered.
The main focus of SGA is wages, self-employment earnings, pensions, worker’s compensation, or other government programs. A lump sum payment for your lottery winnings would mean that your monthly income would only exceed the maximum threshold once. It’s possible to win the lottery and still receive SSDI benefits.
Supplemental Security Income
Supplemental Security Income (SSI) is very similar to SSDI as it provides benefits to qualifying individuals with disabilities or limited incomes.
The critical difference is that SSDI is an earned benefit given to people who paid social security taxes before becoming disabled. SSI is a needs-based benefit provided to people who may never have paid social security taxes.
The difference between these two programs means losing SSI benefits is much easier than SSDI. Winning the lottery will likely result in your SSI benefits being eliminated. The government will likely determine that you no longer need financial assistance.
Eventually, you can be eligible to go back on SSI in the future. However, you would need to prove that your resources and assets have fallen below the upper threshold for SSI requirements in your state.
Medicare
Medicare is a federal health insurance program designed for individuals that are 65 or older. The eligibility requirements for Medicare only involve your age and don’t have anything to do with income or disability status. You can enroll in Medicare and continue to work a regular job without worrying about losing your eligibility.
The standard monthly premium for Medicare Part B is $170.10 in 2022. Most Medicare enrollees will have to pay this amount to maintain their eligibility. You’ll likely have to pay a much higher monthly premium by winning the lottery.
The premium you pay is based on your income information from two years before the current month. This is known as the Income Related Monthly Adjusted Amount (IRMAA). Winning the lottery today can mean your premium will increase two years later. These are the 2022 Medicare Part B monthly premium prices based on annual income:
- $170.10 monthly for individuals making $91,000 or less and couples making $182,000 or less annually.
- $238.10 monthly for individuals making $91,001 to $114,000 and couples making $182,001 to $228,000 annually.
- $340.20 monthly for individuals making $114,001 to $142,00 and couples making $228,001 to $284,000 annually.
- $442.30 monthly for individuals making $142,001 to $170,000 and couples making $284,001 to $340,000 annually.
- $544.30 monthly for individuals making $170,001 to $499,999 and couples making $340,001 to $749,999 annually.
- $578.30 monthly for individuals making $500,000 or more and couples making $750,000 or more annually.
You can meet the eligibility requirements for most programs on this list by taking the lump sum instead of annuities. However, IRMAA closes this loophole as a single windfall of $1 million would result in you paying the highest premium.
The good news is that a lump sum would likely only apply to a single year. You would have to pay the maximum premium for a single year, but the rates would return to normal after the lottery year fell off. Receiving annuity payments would mean the opposite, and you’d have to pay a higher premium based on how much you receive each year.
Medicaid
Medicaid is essentially the state-provided version of Medicare. The eligibility requirements for Medicaid vary from state to state as each has established different program guidelines. Generally, the criteria for receiving Medicaid are based on income and asset information.
Winning a significant prize by playing the lottery will likely push your income above the upper limits for Medicaid eligibility. Each state has different rules, but the issue was recently discussed on a federal level.
H.R. Bill 829 was introduced in 2017 and focused on stripping away Medicaid eligibility for people who’ve won large sums of money via gambling or playing the lottery. The guidelines were as follows:
- Winning $80,000 or less would result in losing eligibility for the month the money was received.
- Every additional $10,000 that's won would result in losing eligibility for another month. A $90,000 prize would strip eligibility for two months, whereas a $100,000 jackpot would strip eligibility for three months.
- The maximum period of stripped eligibility is 120 months and would be applied to people who have won $1,260,000 or more.
The bill never left the House of Representatives, which means that these rules might not necessarily apply in your state. However, it’s important to note that most states have provisions regarding your assets.
In most cases, having more than $2,000 in countable assets (such as a savings account) can disqualify you from Medicaid coverage. So even if you take a lump sum to limit your monthly income, you’re still very likely to lose eligibility for Medicaid in your state.
Unemployment Insurance
Unemployment insurance is funded by employers who must pay mandatory unemployment insurance fees. Like Medicaid, each state determines its eligibility rules, with no two being the same.
In most states, unemployed individuals can make a small amount of money from part-time jobs. A little extra cash usually won’t be enough to disqualify you from the program. However, making too much each month can cause you to lose eligibility.
The good news for lottery winners is that the prizes aren’t customarily considered earned income for unemployment purposes. The jackpot will be considered earned income for taxes, but it usually doesn’t affect unemployment. Of course, each state has different rules, so you must ensure you’re still eligible to continue receiving unemployment benefits.
Winning the Lottery Can Affect Your Current Benefits
It’s a foregone conclusion that you’ll pay many taxes after winning the lottery. Local, state, and federal governments will come knocking almost immediately. The tricky thing is what happens when you’re currently enrolled in government benefit programs.
The majority of these programs come with eligibility requirements centered around your income. Winning the lottery will increase your income, but that doesn’t necessarily mean you’re ineligible. You’ll remain eligible for a few programs, while others might be expensive or have fewer benefits.
Taking a lump sum payment might help you remain eligible for some programs. However, the government could force you to repay any benefits that you might have received.
The best option would be to consult with tax attorneys and financial advisors. These experts can help you navigate the specific rules for your state and help you avoid getting into hot water with the government.
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