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How To Work Out Your Tax Bill If You Win The $495 Million Jackpot

How To Work Out Your Tax Bill If You Win The $495 Million Jackpot

The opportunity to play for almost half a billion dollars is set to capture the imagination of Powerball fans across the country in the build-up to Saturday’s big drawing. The $495 million jackpot is the eighth-largest in the history of the game, but the amount you would end up receiving if you won depends on a number of factors, including the tax obligations where you buy your ticket.

If you are lucky enough to match all five main numbers and the Powerball, the first consideration is the number of other winners. If there are multiple winners of the grand prize, it is split between all of them, unlike all the other fixed payouts in Powerball.

You can then start to think about whether you would like to take the advertised jackpot amount as an annuity, consisting of 30 graduated payments over 29 years with the first payment made immediately. The other option, preferred by the majority of winners, is to take a cash lump sum. This is a reduced amount which just represents the cash value of the jackpot at the time of the draw, rather than the increases you would receive with an annuity.

Federal and State Taxes

Both the cash and annuity options are subject to tax, and you should be prepared for the fact that 37 percent of the jackpot will be withheld in federal tax. For Saturday’s drawing, the cash option is $300 million, so $111 million would be due to the IRS.

You may also be required to pay tax on your Powerball winnings at state level, depending on where you play. There are ten jurisdictions which do not tax prizes, while the rate of withholding in other states ranges from 2.9 percent in North Dakota to 8.82 percent in New York. Put another way, you would have to pay more than 45 percent in taxes altogether if you won in the Empire State.

Federal taxes apply to all prizes above $5,000 at a rate of at least 24 percent, while the threshold for paying state tax starts at $5,000 in most places as well. Go to the Taxes page to find out the local withholding for each of the participating jurisdictions.

The best way to work out what your tax bill would be is to use the tax calculator. You just need to enter the amount, choose your state and, if you are calculating for a jackpot, whether you would want the annuity or a lump sum.

‘Staggering Numbers’

Jason Kurland, a partner for the New York-based law firm Rivkin Radler which specialises in working with big winners, said: “Winners are surprised by how much is withheld in taxes from the initial payment, and then how much more is owed when they file their taxes the following year. All of the numbers involved in these huge jackpots are staggering, and the taxes are no exception.”

The current jackpot has been growing since David Johnson, a truck driver from New York, won $298 million on December 26th. He opted to take the cash sum of $180 million, which was worth just over $114 million after federal, state and NYC taxes were withheld.

While the taxes are significant, Powerball jackpots are regularly so gigantic that winners should not feel at all restricted by these federal and state obligations when they think about spending their money. Johnson, for example, stated that he would be quitting his job as a truck driver and buying a Porsche instead, as well as buying a new house for his family.

As jackpots get bigger, more tickets are sold for drawings. The top prize usually continues to accelerate until someone wins, such as the time back in January 2016 when the jackpot jumped from $524 million to $950 million in the following draw, and then the record $1.58 billion in the next draw when three players split the money.

The tax man will always get his slice in the end as the jackpot will be won sooner or later, but if you know what to expect you can just enjoy thinking about what you would do with your share. Go to the Numbers page to find out the latest results after every draw.

Page Last Updated: 4/8/2019 4:29:28 PM