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Posted: Friday, May 10,2019 | Time: 12:13 pm | Edited by: The Lottery Lab Staff
This Wednesday, Powerball officials announced the winning numbers for the third-largest jackpot in history. Those numbers were 16, 20, 37, 44, 62, and the Red Powerball number 12. According to Powerball, the lucky winner is from Wisconsin. There is a single winner of this big jackpot but the prize comes with a hefty tax bill. The lucky winner’s first tax-related issue will be to choose between a lump sum cash payment and an annuity. The Lump sum cash option is a single payment that transfers the cash prize (after taxes) to the winner all at once. The annuity option provides annual installments paid over a 29-year timespan with the first installment paid immediately. Of course, both payment methods are subjected to federal and state taxes, but the way in which taxes are determined varies depending on the winner’s choice.
While $768 million is a life-changing amount of money the winner is not going to take all of it home. The highest federal tax rate of 37% applies to all major lottery jackpots. And after federal taxes, there are state taxes too. Since the winning ticket was sold in Wisconsin the winner will pay a tax rate of 7.65%. This means that our winner is looking at an effective tax rate of 44.65%, basically cutting their winnings in half.
Bonus read: A Lottery Winner’s Basic Guide to State Income Taxes
Considering that the winner won about $768 million and assuming that he opts for the lump sum cash payout, he will receive an estimated $477 million, after federal taxes. Straight off the bat, the US government will hit the winner with a 24% withholding tax, which is approximately $114,480,000 even before they take their money home. Then when the winner does his 2019 taxes next spring, he will pay the remaining 13% to round out the 37% federal tax, which means another $62,010,000 (assuming that the winner has no pending deductions on this year’s income). This means the total tax owed to the federal government is $176,490,000 which brings the winnings down to $477,000,000.
After that, the state of Wisconsin retrieves 7.65% from the jackpot winner, which means a total of $36,490,500 of the jackpot. Therefore, the actual jackpot prize for the winner is slashed down to approximately $440,000,000. But if we consider that the winner won that amount in exchange for a $2 ticket, the result is not so bad. Moreover, $440 million is a life-changing amount!
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