- The Powerball jackpot is over half a billion dollars.
- The winner of this lottery will come away with a lot less than you might think.
- Whoever wins the lottery could face over 40 percent in taxes.
No one pulled a winning ticket for the Powerball jackpot on Wednesday night. Good news for the future winner though, since the prize winnings jumped from $550 million to $625 million. Hopefully, one very lucky person will nab the prize this Saturday in one of the biggest Powerball lotteries ever.
If you’re lucky enough to take home the lottery prize, you have two options: Take a lump sum or an annuity with annual payments over 30 years. If you take the annuity, you’ll get one payment immediately, and then 29 additional annual payments. The amount of each payment increases 5 percent per year. The total of all 30 payments is equal to the jackpot amount.
The Real Dollar Figures of Winning This Lottery
If you had won the $550 million prize on Wednesday, you could’ve taken the lump sum option of $335 million. About $80.4 million would’ve been withheld for federal taxes. Then you’d still need to pay roughly $114,140,000 when your tax return is due. Plus, state taxes on the winning amount. For example, South Carolina has 7 percent state tax.
Hopefully the ticket will be won in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming. Those states have no income tax.
Taking the annuity payment means you’ll pay the taxes a little at a time, just as you get your winnings each year.
The Lottery Tax Burden
The jackpot is always the before-tax number. Lottery winnings are considered income, so you will pay regular federal, state and local income taxes on your winnings with either the lump sum or annuity option. Before you even leave the lottery office, your winnings will be reduced by withholding. Federal tax withholding is 24 percent. State tax withholding varies by state — some states do not withhold anything, others withhold an amount equal to the state income tax.
The Lottery Is One: 12 Expenses Successful People Don’t Waste Time or Money On
The top federal tax bracket, which you will be in regardless of whether you choose the annuity or lump-sum option, is 37 percent, so you’ll also owe the difference of 13 percent when you file your taxes. For state and local taxes, you might owe additional tax beyond what’s withheld.
Where you buy your ticket matters. Arizona and Maryland have non-resident withholding rates, so if you live elsewhere but buy your ticket in one of those states, you might have double the taxes withheld. If you didn’t win the lottery this week, take solace in the huge amount you’ve saved in taxes. And remember, there are a lot of things you’re more likely to do than win the lottery.
Read more about tax loopholes and strategies the rich don’t want you to know about — in case you do win the lottery in the future.
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Sean Dennison contributed to the reporting of this article.
This article originally appeared on GOBankingRates.com: The $625M Powerball Winner’s Lottery Tax Bill Will Be Massive