So, all those years of buying Powerball tickets have finally paid off. You have hit a mega million dollar jackpot, and the best news is you are the only winner, so you donâ€™t have to share the wealth with anyone else. But before you start counting your millions, there is something you should keep in mind. Taxes on a lottery jackpot are extremely high, and before you know it, you could be shelling out nearly half of your newfound fortune before you even get to spend a dime on yourself.
When you win the Powerball lottery, the first thing you need to keep in mind is that the Multi-State Lottery Commission does not pay up the entire amount that they had advertised for the jackpot. While there are different rules for different amounts, a good rule of thumb is if you win the jackpot, you will receive about half of the amount of the jackpot. For instance, if you win a $100 million jackpot, you will probably only receive $50 million. Now, $50 million is nothing to sneeze at, but when it look at it from the perspective that you have already lost $50 million, then you get some insight into how quickly lottery cash can disappear. Powerball officials keep the rest of the money for operating costs and taxes on their end (in fact, they almost never actually even have the full amount of jackpot on hand).
When you get your half of the winnings, you will be taxes several times over. On a federal level, the IRS requires lottery officials to withhold 28% of your winnings from your right off the bat. This money goes directly to the federal government. States each have their own taxes on lottery money as well. The amount differs from state to state, but the average is around 5%. If you are not a resident of the state in which you won the lottery, then you will likely have to pay state taxes twice - once to the state in which you won the prize, and once in your home state. If you are not a US citizen with a valid Social Security number, then the government will take 30% of your winnings right off the top and additional state taxes will apply as well. These taxes are only the first round. When it comes time to file a tax return, depending on your pre-winning financial circumstances, you may be taxed again as you move up into different tax brackets.
One way to avoid paying these taxes all at once is to go for the Powerball annuity payment option instead of the cash lump sum option. With the annuity option, Powerball officials invest your winnings for you, and make a payment to you every year, for 30 years. You still receive all of your winnings, and you also receive any interest generated by the investments made on your behalf. Instead of taxing all of your winnings at once, the IRS will only tax you for the income you receive each year. This way, the tax burden is spread out over many years. Of course, when you file your income taxes, your tax bill will be higher because of your new wealth, but you will not be hit with a huge bill all at once.
Despite the benefits of the annuity option, the vast majority of lottery winners opts for the lump cash sum payment and gets all of the taxes out of the way up front. Which option you choose depends on your circumstances. Just remember, it is always advisable to hire a financial planner to help you navigate the lottery tax maze.
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1 in 195,249,054.00
1 in 5,138,133.00
1 in 723,144.64
1 in 19,030.12
1 in 13,644.24
1 in 359.06
1 in 787.17
1 in 123.48
1 in 61.74
The overall odds of winning a prize are 1 in 35.11.
The odds presented here are based on a $1 play (rounded to two decimal places). Why isn't the chance of winning $3 at 1 in 39?Click here for FAQ.
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