The Powerball jackpot has reached an estimated $1.2bn, becoming the the third largest jackpot in Powerball history and the seventh largest lottery in the US.
No winning ticket matched all six numbers drawn on Monday 2 October – white balls 12, 26, 27, 43, 47 and red Powerball 5. Now, players will have the chance to take home a lump sum payment estimated at $551.7m or one immediate payment, followed by 29 annual payments that increase by five per cent each year.
However, both prize options are before taxes.
Powerball is played in 45 states across the US, as well as Washington DC, Puerto Rico, and the US Virgin Islands. While there’s been no winner of the Powerball $1.2bn jackpot yet, many people are wondering how much money the winner will take home after taxes.
Federal and jurisdictional income taxes apply to both the cash lump sum and the annuity payment option. For starters, the IRS requires a mandatory 24 per cent withholding for winnings of $5,000 or more.
On top of that, winners must also give up an additional federal income tax. For example, if a winner opts for the cash lump sum payment, they would be subjected to a federal income tax at the top tax rate, which is 37 per cent. That means, after 24 per cent is taken from the IRS, another 13 per cent would be taken for federal income tax.
When it comes to the $1.2bn Powerball, if the winner chooses to receive a lump sum payment, the $551.7m cash value will drop to $419.29m after the mandatory 24 per cent federal tax withholding. As for the federal income tax of up to 37 per cent, the payout further drops to $347.57m.
If the winner opts to receive their prize in installments, each payment of around $40m could drop as low as $25.2m after the 37 per cent federal income tax is applied.
An additional tax could come from the state, depending on where the Powerball winner lives. State tax rates can range from about three per cent to 11 per cent, while some states don’t tax lottery winnings at all.
The lottery is open to all players over the age of 18, regardless of their citizenship status. In order to play, those who live in jurisdictions where Powerball tickets are not sold must purchase a lottery ticket from a licensed or authorised retailer – typically at convenience stores, gas stations, or food markets.
The odds of winning the Powerball jackpot are one in 292.2 million. However, if one lucky foreigner or tourist were to beat those odds, they too may be subjected to various taxes on their prize winnings. When a non-US citizen buys a lottery ticket, they will need to show proof of identity with an official identification document issued by their country of origin, such as a passport or other form of valid ID, to verify their age. If a tourist or non-US citizen were to win the Powerball, they would face the same tax implications as an American citizen. They must also pay taxes in the state where the ticket was purchased, and their country of origin’s tax laws.
Powerball lottery players, regardless of whether they’re a US citizen or not, should consult a financial advisor if they ever find themselves becoming a billionaire overnight.
The next Powerball drawing takes place on Wednesday 4 October at 10.59 pm ET.
