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

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

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

Anyway, sort of.

The advertised number represents the pre-tax amount you would receive if you did this receive your incredible profits as an annuity spread over three decades. Still, most jackpot winners choose an upfront one-time cash payment — which, for this drawing, is less than half the annuitized amount and also represents a pre-tax figure: $497.3 million.

The annuity option is higher than it was, compared to the cash option, because higher interest rates that allow the game to fund larger annuitized prizes, according to the Multi-State Lottery Association, which runs Powerball. However, the cash option is driven by ticket sales.

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Almost $120 million would be shaved off the top

So what would you pay? taxes if you beat the odds and hit the jackpot?

Assuming you chose the cash option like most winners, the 24% federal withholding tax would reduce the $497.3 million by $119.4 million.

However, it would more likely be a credit to the IRS at tax time. The top federal income tax rate is 37% and this year it applies to income above $539,900 for single taxpayers and $647,850 for married couples. Next year, the highest rate is imposed on incomes above $578,125 (individuals) and $693,750 (married couples).

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This means that unless you were able to reduce your taxable income by e.g. making charitable donations, another 13% — or about $64.7 million — would go to the IRS. That would mean $184.1 million goes into federal coffers, 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 don’t tax lottery winnings — others impose a top tax rate of more than 10%.

Still, the winner would end up with more money than most people see in a lifetime or two.

And, of course, you probably won’t have to worry about how much the jackpot would actually fetch—the chance of a single ticket matching all six Powerball numbers is about 1 in 292 million.

Meanwhile, the Mega Millions jackpot is $87 million ($42.8 million in 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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