|Jonathan Alcorn jackpot.|
If you can beat the odds against hitting the Powerball jackpot, remember that you have a quiet partner in victory: the Tax Office.
Saturday night's draw jackpot was an estimated $1.6 billion (before tax), making it the largest lottery prize ever. If you choose to receive the windfall benefits of a 30-year annuity. The upfront cash option most jackpot winners choose is $782.4 million (also before tax) in this draw.
A single ticket has a roughly 1 in 292 million chance of hitting the jackpot, and since August 3rd, the top prizes have continued to rise in the three weekly draws. A Pennsylvania ticket matched all six numbers drawn to win the $206.9 million jackpot.
According to the Multi-State Lottery Association, which runs Powerball, recently higher interest rates have allowed the game to fund more annuity-laden prizes, so compared to cash options, annuity options used to be larger than However, the cash option is facilitated by ticket sales.
$187.8 million cut from the top
So what taxes would you pay if you beat the odds and hit the jackpot? Assuming you chose the cash option like most winners, the 24% federal tax withholding would save you $782.4 million by $187.8 million.
But it's even more likely that the IRS is to blame at tax time. The top federal income tax rate is 37% and applies this year to income over $539,900 for individual tax filers and $647,850 for couples. Next year, income above $578,125 (individuals) and $693,750 (teams) will be taxed at the highest rates.
This means that an additional 13% (about $101.7 million) will go to the IRS if you can't reduce your taxable income by making charitable contributions, for example. This would result in $289.5 million going into federal funds, leaving $492.9 million.
State taxes may also apply depending on where you purchased your ticket and where you live. Some jurisdictions have no income tax or no tax on lottery winnings, while others have top tax rates over 10%.