NEW YORK — Powerball fever is sweeping the country, with a record-breaking $1.9 billion jackpot on the line on Nov. 7, 2022. While millions of Americans are already thinking about the numbers they want to play and counting all the ways they’ll spend this historic payout, you might want to take a time out — because Uncle Sam wants his cut too! Yes, the Powerball winner will see a hefty chunk of change go to the government, but how much exactly will come out of the jackpot for taxes?
First of all, if you somehow weren’t aware, the Powerball jackpot is rising to historic levels. On Nov. 5, 2022, no one matched all six numbers (28, 45, 53, 56, 69, and Powerball 20) for the $1.6 billion jackpot, sending the next drawing to the game’s largest prize in history. If someone wins the humongous jackpot, it would be one of the largest payouts in U.S. lottery history.
Whoever ends up winning will definitely beat the odds, since the odds of winning the Powerball grand prize are 292.2 million-to-one! Hey, you’ve gotta be in it to win it, right? Unfortunately, your time as a billionaire won’t last very long, once you factor in all the taxes the government will be deducting from the $1.9 billion Powerball prize. So, the biggest question many people probably have is: how much am I really getting? Well, that actually comes down to two major factors.
Lump sum or annuity?
The first factor is how you want that money paid out, in one lump sum or in a 30-year annuity. The lump sum is pretty straight forward, you get the Powerball jackpot all up front in one huge check. Meanwhile, anyone opting for the annuity gets one lottery payment up front and then 29 annual payments after that.
Here’s where the first major catch comes in. Winners who opt for the lump sum lose just under 51 percent of that $1.9 billion Powerball jackpot before it ever reaches their bank account! That brings the total down to approximately $934,876,000, according to powerball.net.
Powerball taxes are more than you think!
Assuming you opt for the lump sum to avoid the uncertainty of a 30-year payment plan, it’s now time to start deducting the federal government’s share of the Powerball winnings. Although the IRS automatically withholds 24 percent of lottery winnings, you’re now an extremely rich person! That means you owe even more in taxes! If the winner opts for the Powerball lump sum on Nov. 7, that $934,876,000, becomes part of their 2022 federal income tax return, according to Kiplinger.
This sudden increase in income shoots the winner into the nation’s highest tax bracket of 37 percent. So, on top of the 24 percent the IRS just took out, the winner owes another 13 percent to the federal government. In total, that comes out to $345,904,120.
So, from $1.9 billion, your historic Powerball jackpot is now down to $588,971,880 thanks to taxes — and you haven’t even bought a new car yet!
Some states don’t charge taxes on lottery winnings!
The second major factor in figuring out how much of the Powerball jackpot you’ll actually see is the state you live in. Since state taxes vary throughout the United States, this answer will change drastically depending on where the winner is.
However, for people in eight states, there are no taxes on lottery winnings, according to financial and investing advice company The Motley Fool. Those states are California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. After that, state taxes vary from 2.9 percent in North Dakota to a whopping 8.82 percent in New York.
So, if someone is “unfortunate” enough to win the Powerball jackpot while living in New York on Nov. 7, they would owe another $82,456,063 in state taxes! That would drop the Powerball lump sum total to $506,515,816.
That may be enough money for the rest of your life, but it certainly isn’t $1.9 billion! Thanks a lot, Uncle Sam.