Jonathan Alcorn Reuters
If you manage to overcome the dangers of hitting the Powerball jackpot, don’t forget that you will have a silent partner in winning: the tax.
The jackpot for Saturday night’s drawing is now the biggest lottery with an estimated $1.6 billion – before taxes – if you choose to take the wind as an annuity spread over thirty years. The first cash option – which is chosen by most jackpot winners – for this drawing is $782.4 million, before taxes.
With a single ticket’s approximately 1 in 292 million chance of hitting the jackpot, the first prize has been increased through three weekly drawings since August 3 , when a ticket in Pennsylvania matched six numbers drawn to win a $206.9 million jackpot. .
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Today, the annuity option is higher than before, compared to the money option, because of the higher interest rate that allows the game to fund the larger annuitized prize, according to the Multi-State Lottery Association, which administers Powerball. The cash option, however, is driven by ticket sales.
$187.8 million will be shaved off the top
So what will you pay in taxes if you beat the odds and hit the jackpot?
Assuming you were like most winners and chose the cash option, the 24% federal tax withholding would reduce $782.4 million to $187.8 million.
However, it can be more than the IRS at tax time. The highest federal tax rate is 37% and this year it applies to income over $539,900 for individual taxpayers and $647,850 for married couples. Next year, the maximum rate is set for incomes above $578,125 (individuals) and $693,750 (couples).
This means that if you cannot reduce your income from taxes by, for example, making charitable donations, another 13% – or about $ 101.7 million – will go to the IRS. That translates to $289.5 million going to the federal coffers in all, leaving you with $492.9 million.
State taxes may also apply, depending on where the ticket was purchased and where you live. While some states have no income tax – or don’t tax the lottery – others impose a higher rate of over 10%.
However, the winner will end up with more money than most people will ever see in a lifetime.
Meanwhile, the Mega Millions jackpot is $119 million ($59.1 million) for Friday night’s drawing. The odds of your ticket hitting the jackpot in that game are about 1 in 302 million.