The allure of the Powerball jackpot has once again caught the public’s imagination, with an estimated prize of $935 million at stake for this Saturday’s drawing. Dreamers may fantasize about winning the grand prize, but the reality is that a substantial portion will go towards taxes—much to the taxman’s delight but potentially the winner’s dismay.
The advertised jackpot amount is indeed eye-catching, yet it’s essential to recognize that this figure represents the annuity option, which pays out over an extended period. However, a 2018 USA TODAY analysis advised that taking the lump sum payout might be the better choice. But regardless of the option selected—annuity or lump sum—taxes will inevitably take a bite out of the winnings.
A New Jersey resident recently experienced this when they won the Mega Millions jackpot. Just like them, any potential Powerball winner will face a significant tax bill, though admittedly, it’s a high-class problem that comes with being unimaginably wealthy overnight.
When it comes to federal taxation, lottery winnings are categorized according to income brackets. As it stands, the two highest brackets are taxed at 37% for incomes above $578,125 and 35% for incomes over $231,250. Initially, the lottery commission withholds 24% of the prize for federal taxes. The remaining tax due is the responsibility of the winner to cover. Consequently, if Saturday’s prize were to go to a single winner who opts for the cash payout and falls into the highest tax bracket, they would net an estimated $283,346,573 after federal taxes if they reside in a state without its own lottery tax—the federal levy invariably comes first.
Most states, however, impose their own taxes on lottery wins. New York sits at the top of the list with a whopping 10.9% state tax on lottery winnings. Not too far behind are Maryland and the District of Columbia with taxes of 8.9% and 8.5%, respectively. For a New York dweller claiming the cash option without deductions, the state tax bill alone would be $49,017,300, illustrating just how much would be trimmed from the grand total.
Yet, there’s a glimmer of good news for those residing in particular regions: ten states and territories—California, Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, U.S. Virgin Islands, Washington State, and Wyoming—do not levy taxes on lottery prize money. Residing in these tax havens could indeed make a significant difference in the amount of money the winner actually takes home.
For eager players, purchasing tickets doesn’t require a special trip. Lottery tickets are readily available at local gas stations, convenience stores, and grocery shops. Moreover, certain airport terminals occasionally sell them, making it possible to try your luck while on the go.
An interesting development in the lottery world comes in the form of digital purchases through services such as Jackpocket. This official digital lottery courier of the USA TODAY Network enables individuals in select U.S. states and territories to order tickets online. Available locations include Arizona, Arkansas, Colorado, Idaho, Massachusetts, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oregon, Puerto Rico, Texas, Washington D.C., and West Virginia. Jackpocket’s app allows lottery enthusiasts to select their game, pick numbers, place orders, view tickets, and collect winnings right from a phone or computer. It’s worth noting that Gannett may profit from referrals to Jackpocket services.
Jackpocket’s partnership with the USA TODAY Network is indicative of a shift towards modernization in how lotteries operate. However, it’s essential to heed the age restrictions: 18+ generally, with the exception of 21+ in Arizona and 19+ in Nebraska. And as with all gambling, responsible play is encouraged, and resources are available for those needing assistance.
In light of all these stats and figures, the imagined riches from a Powerball win appear less immense when taxes are considered. Despite the decrease in the final take-home amount, for the extraordinarily lucky individual who does win, such fiscal matters are likely to be little more than a mere inconvenience. As the saying goes, it’s one for you, and nineteen for the taxman.
