Powerball jackpot hits $1 billion. If you win, here’s the tax bill

Powerball jackpot hits $1 billion. If you win, here’s the tax bill

The jackpot for Monday night’s Powerball drawing is $1 billion.

Sort of, anyway.

The announced number represents the amount of pretax that you will get yourself receive your winnings as an annuity spread over three decades. However, most jackpot winners choose the one-time cash advance payment – which, for this drawing, is less than half of the annuitized amount and is also a pretax figure: $497.3 million.

The annuity option is higher than it has been, relative to the cash option, because of higher interest rates which make it possible for the game to finance larger annuitized prizes, according to the Multi-State Lottery Association, which manages Powerball. The cash option, however, is driven by ticket sales.

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Nearly $120 million will be shaved off the top

So what would you pay? taxes if you were to beat the odds and land the jackpot?

Assuming you are like most winners and chose the cash option, a net 24% federal tax would reduce the $497.3 million from $119.4 million.

However, it will most likely be owed to the IRS at tax time. The top federal income tax rate is 37% and this year it applies to incomes above $539,900 for individual taxpayers and $647,850 for married couples. The following year, the highest rate is taxed on income above $578,125 (individuals) and $693,750 (married couples).

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This means that unless you could reduce your taxable income, for example, make charitable donations, another 13% — or about $64.7 million — would be owed to the IRS. That translates into $184.1 million going to federal coffers in total, leaving you with $313.2 million.

State taxes may also be due, depending on where the ticket was purchased and where you live. While some jurisdictions have no income tax – or do not tax lottery winnings – others impose a top tax rate of more than 10%.

However, the winner ends up with more money than most people will see in a lifetime or two.

And, of course, you probably don’t need to worry about how big the jackpot really is – the chance of a single ticket matching all six numbers drawn in Powerball is about 1 in 292 million.

Meanwhile, the Mega Millions jackpot is $87 million ($42.8 million cash) for Tuesday night’s drawing. The chance of your ticket hitting the jackpot in that game is about 1 in 302 million.

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