The Powerball jackpot for Saturday soared to an impressive $1.8 billion, marking it as the second-largest prize in U.S. lottery history.
This jackpot, close to $2 billion, is meant for a single winning ticket opting for pension payments over a span of 30 years. Yet, most winners tend to select the cash option, which amounts to around $826.4 million before taxes.
Of course, taxes will significantly cut into that total.
Federal Tax on Lottery Winnings
Winnings are subject to an automatic federal withholding of 24%, as mandated by the IRS, for prizes over $5,000.
If you choose the cash option of $826.4 million, you’d see about $628 million after a 24% withholding, translating to roughly $183.6 million heading straight to the IRS.
Many people, um, millions perhaps, have different experiences with lottery winnings—if they even get to the point of winning big. It’s essential to understand the implications here.
Additionally, when you file your 2025 return, you should plan for an extra 13% in federal tax. This increase pushes many winners into the 37% tax bracket, leaving you with about $520.6 million after federal income taxes.
State Taxes on Lottery Winnings
On top of federal taxes, state taxes also come into play, and these vary widely—from 2.9% in North Dakota to 10.9% in New York.
However, if you happen to live in states like California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming, you won’t have to pay any state taxes on your winnings.
And if you find yourself in one of the five states without a lottery (that would be Alabama, Alaska, Hawaii, Nevada, and Utah), or bought a winning ticket out of state, the state where you purchased your ticket can withhold state taxes. Yet, you might be able to request a tax credit for taxes already paid to other states.
Beware of Lottery Pool Winnings
If you’re part of a lottery pool with friends or coworkers, it’s crucial to document that the winnings aren’t solely yours. It’s, uh, a bit tricky. If you collect the total prize and distribute it later, the IRS might interpret that differently.
Everyone involved should ideally enter the pool with a written contract that specifies everyone’s share, just in case you need to present it to the IRS.
In the event of winning a jackpot, it’s wise to consult tax professionals and financial advisors.
“It’s all about safeguarding your winnings and minimizing taxes,” stated John Chichester Jr., a certified financial planner based in Phoenix. He emphasized that working with experts is key.
Chichester also mentioned that winners who opt for the 30-year annuity might find their tax planning options to be a bit more flexible.
On a related note, attorney Andrew Stoltmann, who has represented numerous lottery winners, shared that many have squandered their fortunes through poor investments or unwise spending. “Many winners think, well, the hard part is over, but they don’t realize that’s just the beginning,” he advised.
