Now at $1.5b, Powerball Jackpot Has Been Rising Since August: Here are the Tax Ramifications for Saturday’s Possible WinnerPublished November 4, 2022 by Lee R
Saturday could be the largest Powerball jackpot award of all time--if someone hits the winning numbers.
The Powerball jackpot is up to a whopping $1.5 billion; Forbes’ look at how taxation works clarify players' overall reward and opportunity.
After no one hit the winning numbers in last Wednesday’s draw to raise the prize to $1.5 billion, the take-home total will be adjusted with deductions.
Type of Payment
First off, a choice: Powerball winners can receive the full prize as an annuity paid divided yearly over 29 years or as a lump sum 1-time payment.
The jackpot value actually represents the annuity value. The lump sum payment is worth about half that prize, at $746 million.
Then come the deductions: an immediate 24% mandatory federal tax withholding bill reduces the amount by $179 million for the winner, resulting in an initial take-home value of $567 million for the winner.
Federal taxes for the year are then levied in the marginal rate as income, leaving a single taxpayer with no other income or dependents owing some $97 million in income tax to bring the overall take down to $470 million.
State and City
State and city tax deductions are determined by where the winner resides and the ticket was purchased. Applicable deductions can range from sizeable percentages in California or New York state to areas with no state taxes such as Florida--plus applicable city taxes.
By the same projections, a winner that chooses the annuity payment will receive some $50m/year, from which $31.5 million in federal taxes would be deducted, plus state and city requirements.
The rise in grand prize amounts in lotteries in recent years is a phenomenon. While rules for the lottery have been adapted to make winning easier, the lack of weekly hits keeps driving individual jackpot totals up.
Last Wednesday Awards
The Wednesday draw sold over 7.2 million tickets and awarded cash prizes totalling $75 million.
According to officials, Powerball has been drawn 39 times since the last winner in August. The next draw on Saturday marks the second-largest jackpot in lottery history and third largest in US history.
The odds of winning the grand prize are estimated at 1 in 292.2 million. The current record award for the largest Powerball jackpot stands at $1.59 billion--split amongst three winners in California, Florida, and Tennessee in January 2016. Saturday’s Powerball drawing is set to broadcast live at 10:59 p.m. ET from the Florida Lottery studio and streams online at Powerball.com.
Even with the deductions, the winner will take home a ton of cash.