The Powerball lottery jackpot now sits at an estimated $700 million after no one won Monday’s drawing. The next drawing is on Wednesday night.
While the thought of mansions, yachts and private airplanes is surely tempting, with the taxes a lottery winner has to pay, the amount you end up with may not cover the lifestyle you imagine.
Powerball allows the grand prize winner to decide how he or she wants to get the money — either by choosing an annuity where the jackpot is paid out over a 30-year period or by taking it in a lump sum. According to lottery officials, most winners opt for the lump sum, or the “cash option.”
In the case of the next Powerball jackpot of $700 million, that amount would be $352.3 million. It’s a staggering pile of money, to be sure, but, hold on, it’s not what you would pocket following your win.
The federal government and all but a few state governments will have their hands out for a bit of your prize.
The top federal tax rate is 37% for income over $500,000. When it comes to lottery prizes, the first thing that happens after you turn in that winning ticket and get your lump sum is that the federal government takes 24% of the winnings off the top.
But the payments don’t end there. You will owe the rest of the tax — the difference between 24% and 37% — at tax time next year.
So, let’s say you decide to take the cash option when you win the jackpot. If the jackpot remains at $700 million for the next drawing, and the cash option is $352.3 million then here is how it will go:
The federal government will immediately take $84,552,000 from that cash option (24%). Remember, the rest of your federal tax bill comes next year and will cost you another $45,761,955.
So, when you take the cash option, you will end up with $221,986,045 after federal taxes.
Now it is the state’s turn.
State tax rates on lottery winnings vary. If you live in Georgia, your state tax rate for lottery winnings is 5.75%. That means you get $201,728,795 after taxes.
If you live in New York, get out your wallet, because that state taxes lottery winnings at 8.82%. The lump sum that most New York residents would get after federal and state taxes would be $183,585,345. Additional taxes are charged if you live in New York City or Yonkers.
In Ohio, the state taxes lottery winnings at 3.99%, so you will take home $208,774,795.
If you buy a winning Powerball ticket in California, Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming, there’s some good news for you: those states do not tax lottery winnings. This means if you live in those states and win, you will get $221,986,045.
One note: Your winnings could also be subject to local taxes in some states.
Click here for USA Mega, a website that provides information on lotteries in the U.S. and around the world, and breaks down by state what you would take home if you win the lottery drawing — both the lump sum option and the annuity option.