What to Know
- 24 percent of your win is withheld for federal taxes.
- However, the top marginal tax rate of 37 percent means you’d owe more to Uncle Sam at tax time.
- State taxes also would either be withheld or due, depending on where you live and where you bought the ticket.
The Powerball jackpot just won’t quit.
After no one hit all winning numbers in Saturday night’s drawing, the top prize has jumped to a whopping $750 million. And while players daydream about what they’d do with such a windfall, they should remember they wouldn’t really end up with the advertised amount.
Whether you take the prize as an annuity spread out over three decades or as an immediate, reduced lump sum, 24 percent of your win is withheld for federal taxes. Yet the top marginal tax rate of 37 percent means you’d owe a lot more at tax time. And state taxes typically are due as well.
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“The big impact on winnings is taxes,” said certified financial planner Dan Routh, a wealth advisor at Exencial Wealth Advisors in Oklahoma City. “If you win, just realize how big the tax bill can be and make sure you’re ready to handle it.”
The Powerball jackpot, which now marks the fourth-largest U.S. lottery prize ever, has been climbing since late December with twice-weekly drawings yielding no top-prize winner. It’s little wonder — your chance of matching all six numbers is about 1 in 292 million.
For Wednesday night’s drawing, the cash option — which most winners go with — is $465.5 million. The 24 percent federal withholding would reduce that amount by $111.7 million.
Assuming you had no reduction to your taxable income, another 13 percent, or $60.5 million, would be due to the IRS. That’s $172.2 million in all going to Uncle Sam.
After federal taxes, you’d be left with $293.3 million. Then there are state taxes, which range from zero to more than 8 percent depending on where the ticket was purchased and where the winner lives.
In other words, you could end up paying more than 45 percent in taxes.
Given the sheer size of the jackpot, experts say it would be crucial to assemble a team of experienced professionals to help navigate the windfall: an attorney, a tax advisor and a financial advisor.
“There’s a big responsibility that goes with having such a large sum of money,” Routh said. “It would be important to surround yourself with a quality team that’s working in your best interest.”
This story first appeared on CNBC.com. More from CNBC:
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