If you win the Powerball and take the lump sum payment immediately, almost a quarter of it will be withheld for federal taxes. And you’re not off the hook yet.
WASHINGTON — If you somehow beat the lottery’s astronomical odds, a hefty tax bill awaits you.
This is because lottery winnings are treated as income by the federal government and most states, and therefore jackpots are subject to state and federal income taxes. However, there are 13 states that do not impose taxes on residents’ lottery winnings.
So if you won on Saturday $960 million Powerball jackpot, How much would you actually get?
When a grand prize winner comes forward, they must first decide whether they would like to receive their winnings in a 30-year annuity or in the form of a lump sum in cash. If they choose to retire, they will ultimately receive the entire advertised jackpot over a period of three decades.
Most jackpot winners choose the lump sum, which means they receive the “cash value” of that jackpot. For Saturday’s Powerball jackpot: the cash value was announced about $441.4 million.
Immediately, 24% of this cash value is withheld for federal taxes and forwarded to the IRS. TurboTax explained.
In the scenario where only one person wins the Powerball and chooses this cash option, approximately $105.93 million of Saturday’s estimated winnings would be withheld, reducing that to $335.46 million.
But even then, you’re not completely off the hook.
Since the federal government counts lottery winnings as income, winning such a large jackpot would likely move the winner into a higher tax bracket where their income would be taxed at 37%. So the next time the winner files their taxes, they will likely have to pay the IRS another 13% of that winnings.
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In most states, tax is deducted from prize money before it is even paid out to the winner. Details about when and how much the winner pays vary by state. Then there are 13 states that do not tax a person’s lottery winnings Tax Foundation And USA Mega, an online resource for multi-state lotteries that is not affiliated with the lotteries themselves. These states are: Alabama, Alaska, California, Florida, Hawaii, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Utah, Washington and Wyoming.
LuteEstimates from USA MegaThe winner of the $960 million published jackpot would earn $278,119,045 if they are from one of the states where winnings are not taxed and choose the lump sum option.
However, if you are from, say, New York, where withholding is the highest at 8.82%, the net payout would drop to $230,006,445. according to USA Mega estimates.
VERIFY contributed to this report.