Powerball Tax: How Much of $650 Million Jackpot Would you Take Home?Monday August 21st 2017
The second-largest jackpot in Powerball history will be on offer this Wednesday after the top prize soared to a stunning $650 million. However, if anyone is lucky enough to win, the amount they will receive will depend on the tax laws of the state in which they bought their ticket.
Annuity or Cash?
The first decision facing a Powerball jackpot winner is whether to take a one-off cash payment or the full amount in 30 annual installments. The difference here is that the cash prize is what is currently available, while the annuity amount is what it will be worth once invested over 29 years.
The cash value for Wednesday’s jackpot is estimated to be $411.7 million and, whichever option the winner chooses, they will have to pay tax at both a federal and state level.
There is a 25% tax on big Powerball prizes at a federal level. If there was a single winner of Wednesday’s jackpot and they opted for the lump sum, $102,925,000 would be slashed from their payout at this point and they would be left with $308,775,000.
Each of the 47 participating jurisdictions has its own tax withholding rate. While some lotteries do not tax lottery prizes, players across most of America are subject to state tax. Tax obligations can also depend on whether you are a resident of the state where you buy your ticket. For example, in-state residents of Arizona pay 5% tax, while non-residents are charged at 6%. In Maryland, it is a better deal for non-residents, who are taxed at 7.5% rather than the standard state rate of 8.75%.
Best and Worst States for Tax
There are several states which do not tax big lottery prizes. These are California, Florida, New Hampshire, Puerto Rico, South Dakota, Tennessee, Texas, U.S Virgin Islands, Washington State and Wyoming.
Oregon (8%), Washington D.C (8.5%) and Maryland (8.75%) are among the worst states for tax, but New York imposes the steepest charge at 8.82%. New York also has additional withholding for anyone living in New York City (3.876%) and Yonkers (1.323%).
Ahead of the $650 million drawing, David Selig, a federal tax practitioner who runs Selig & Associates, said in the NY Daily News: “If you’re unlucky enough to win in New York, this is the most expensive state in the U.S, to win the lottery. Between the federal and state taxes, you lose more than 50 cents on the dollar. And then there are city taxes, too.”
Still interested in trying your luck in Wednesday's draw? Get tickets from your local retailer, or avoid the lines and buy your Powerball tickets online.