If a Powerball winner receives a one-time payment right away, nearly a quarter of the prize will be withheld for federal taxes. And they still haven’t gotten off the hook.
WASHINGTON — Anyone in California who beat the lottery’s astronomical odds and won the $1.08 billion Powerball jackpot now faces a huge tax bill that awaits them.
That’s because lottery winnings are considered income by the federal government and most states, so jackpots are subject to state and federal income taxes. However, California is one of 13 states that do not collect additional taxes on residents’ lottery winnings.
So how much will Wednesday’s Powerball winner actually get?
As a grand prize winner moves forward, they must first decide if they want to receive their winnings in a 30-year annuity or receive their winnings as a lump sum. If they choose the annuity, they will end up receiving the entire advertised jackpot over a three-decade period.
Most jackpot winners go with the lump sum, which means they get the “cash value” of that jackpot. For Wednesday’s Powerball jackpot, the cash value was $558.1 million.
Immediately, 24% of that cash value is deducted for federal taxes and goes to the IRS, TurboTax explain.
So if a Powerball winner chooses the cash option, about $133.94 million of Wednesday’s estimated prize will be withheld, down to $424.16 million.
But even then, the winner hasn’t been entirely successful.
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Because the federal government considers lottery winnings as income, receiving such a large jackpot is likely to subject the winner to a higher tax rate, where their income is taxed at the same rate. 37%. So when the winner pays their next taxes, they will likely have to pay 13% more to the IRS of that prize.
In most states, tax money is taken from the prize money before it is given to the winner. Details on when and how much winners pay vary by state. Then there are 13 states that don’t tax a person’s lottery winnings, according to Tax organization And US Mega, a multi-state online lottery resource not affiliated with the lottery companies themselves. Those states are: Alabama, Alaska, California, Florida, Hawaii, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Utah, Washington, and Wyoming.
follow mestimulus from USAMega.comThe winner of the publicly available $1.08 billion jackpot will win $351,640,045, if they choose to pay a lump sum, since the ticket was purchased in California.
But for example, if the winner is from New York, which has the highest state tax deduction at 8.82%, the net payout would drop to $290,807,145, as estimated by USA Mega.
If the $1.08 billion winner decides to claim their winnings in a 30-year annuity, their average per year will be $22,712,845 and a total of 681,385 will be received. $350 after 30 years, according to America Mega.
VERIFY contributed to this report.