-If you win the Powerball jackpot, your rewards will dramatically decrease once the IRS deduction has been made.
-A lump prize of $310.6 million in cash or monthly payments totaling $615 million are available to the winner.
-According to experts, the 30-year annuity option may provide more flexibility for tax purposes.
If you manage to get the Powerball jackpot winning ticket this Saturday night, after Uncle Sam takes his cut, your rewards will be considerably reduced.
The $310.6 million cash lump sum or the $615 million in annual installments are the options available to the Powerball jackpot winner. Until the Multi-State Lottery Association accepts bids for the purchase of investments, these are estimates.
The ability to accept the jackpot over a 30-year period with annuity payments is one of its unique features, according to John Chichester Jr., a certified financial planner and the founder and CEO of Chichester Financial Group in Phoenix. That gives you a lot more freedom in how you pay taxes.
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You can accept the annuity payment and invest the money in a tax-efficient way rather than paying a greater upfront tax charge, suggested Chichester, a certified public accountant.
About 1 in 292 million people have a chance of winning the Powerball jackpot.
More than $74.5 million ‘comes off the top’
There is a necessary 24% federal withholding that goes to the IRS before winners receive a penny of the multimillion dollar reward. A withholding is required for prizes over $5,000.
If you decide to choose the $310.6 million cash option, the automatic 24% withholding lowers your share by more than $74.5 million. But many taxpayers mistakenly believe that they are exempt beyond that 24%, according to Chichester.
He added, “That 24% comes off the top, but at some point you’re still responsible for the other 13%.”
This is why: If you win the lotto and make millions, you’ll be subject to the highest federal income tax rate. For 2023, taxable income of $578,126 or more for solo filers and $693,751 or more for married couples filing jointly are subject to the 37% rate. (You deduct from your adjusted gross income the greater of the standard or itemised deductions to determine your taxable income.)
Of fact, not all of your taxable income is subject to the 37% tax rate. Single filers will pay $174,238.25 in addition to 37% of the amount over $578,125 in taxes for 2023. The total debt for married couples filing jointly is $186,601,50, plus 37% of the amount over $693,750.
Depending on where you live and where you purchased the ticket, you might additionally owe state taxes. While some states don’t tax lottery wins or don’t impose an income tax, others have top state income tax brackets that are over 10%.
There are other ways to win big this weekend besides the Powerball. Meanwhile, the Mega Millions drawing on Friday night’s jackpot has increased to $450 million. In that game, the likelihood of winning the jackpot is about 1 in 302 million.
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