Powerball jackpot climbs to $1B. Here’s the tax bite if you win
For the second time in Powerball’s 30-year history, the jackpot for Monday night’s drawing is a staggering $1 billion.
It is the fifth largest lottery jackpot in the history of the United States, which is not shy of the record Payment of $1.586 billion scored by three Powerball ticket holders in 2016.
Powerball said Monday’s jackpot jumped to an estimated $1 billion from $825 million after no ticket matched all six numbers drawn on Saturday.
However, each winner could see much less money than advertised.
POWERBALL JACKPOT TOUCHED $1 BILLION FOR MONDAY’S DRAWING
Most jackpot winners choose the upfront, lump sum payment. In this case, that’s about $497 million before taxes. Lottery winners are required to pay a 24% federal withholding tax on his winnings, which would be about $120 million in this case.
In addition to this, lottery winnings are taxed as regular income: The Current maximum tax rate it will be applied to income of more than $578,125 for individuals and $693,750 for married couples filing jointly next year. This means that the winners have to pay an additional 13% on their winnings, which reduces the total number to about $314 million.
You may also owe state taxes on the money, depending on where you live. Tax rates for lottery winnings are generally around 3% to 11%.
There is another way to increase your take home winnings and reduce the tax hit.
HERE ARE WEDNESDAY’S WINNING NUMBERS IN THE $715.1M POWERBALL DRAWING
Instead of choosing a one-time payment, lottery winners can opt for the annuity payment plan. The annuity option is 30 annual payments that are typically stretched over 29 years.
When you choose this route, you end up with more money because the principal amount accumulates the interest earned over the next three decades, according to TurboTax. The money you haven’t taken out yet is invested for you.
Most financial experts advise winners to go with the annuity option, given the history of lottery winners winning millions just for end up in bankruptcy.
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However, there is no reason to worry too much about the tax hit from winning the lottery. The final payoff — regardless of the massive tax rate — is even more money than most Americans will see in a lifetime.
The odds of matching all six numbers drawn in a Powerball are about one in 292.2 million.
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