Jonathan Alcorn | Reuters
If you manage to beat the odds to win the Powerball jackpot, remember that you’ll have a silent companion in your winnings: the taxman.
The jackpot for Saturday’s drawing is now the biggest lottery win of all time at an estimated $1.6 billion — before taxes — if you chose to take your windfall as an annuity spread over three decades. The cash-up option — which most jackpot winners choose — for this drawing is $782.4 million, also before taxes.
With a single ticket’s odds of winning the jackpot approximately 1 in 292 million, the top prize has been increased through drawings three times a week since Aug. 3, when the Pennsylvania ticket matched all six numbers drawn, for a $206.9 million jackpot. .
These days, the annuity option is greater than it used to be, relative to the cash option, because of higher interest rates which allow the game to fund larger annuity winnings, according to the Multi-State Lottery Association, which operates Powerball. However, the cash option is driven by ticket sales.
So what would you pay in? taxes if you were to beat the odds and hit the jackpot?
Assuming you were like most winners and chose the cash optionA 24% federal tax cut would reduce $782.4 million by $187.8 million.
Even more would likely be due to the IRS at tax time. The top federal income tax rate is 37%, and this year it applies to income over $539,900 for single filers and $647,850 for married couples. Top rate next year it is imposed on income above $578,125 (individuals) and $693,750 (married couples).
This means that if you were not able to reduce your taxable income e.g. making charitable donations, another 13%—or about $101.7 million—would go to the IRS. That would translate into $289.5 million going into federal coffers combined, leaving you with a cool $492.9 million.
State taxes may also be payable depending on where the ticket was purchased and where you live. While some jurisdictions have no income tax – or 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.
Meanwhile, the Mega Millions jackpot is $119 million ($57.7 million in cash) for Friday night’s drawing. The odds of your ticket hitting the jackpot in this game are roughly 1 in 302 million.