Somehow anyway. The figure advertised represents the pre-tax amount you would receive if you took your windfall as an annuity spread over three decades. But most jackpot winners opt for the upfront lump sum cash payment — which, for this drawing, is less than half the annual amount, and it’s also a pre-tax amount: $497.3 million. The annuity option is higher than it used to be, relative to the cash option, because of higher interest rates that make it possible to fund larger annual prizes in the game, according to the Multi-State Lottery Association, which runs Powerball. The cash option, however, is driven by ticket sales. More from Personal Finance: How investors can keep FOMO at bayTips to grow your salary See what it takes to build wealth
Nearly $120 million will be shaved off the top
So what would you pay in taxes if you beat the odds and hit the jackpot? Assuming you were like most winners and chose the cash option, a 24% federal withholding tax would reduce the $497.3 million by $119.4 million. Even more would likely be owed to the IRS during tax season. The top federal income tax rate is 37%, and this year it applies to income over $539,900 for single taxpayers and $647,850 for married couples. Next year, the top rate is imposed on income above $578,125 (individuals) and $693,750 (married couples). That means if you can’t reduce your taxable income by, say, making charitable donations, another 13% — or about $64.7 million — would be owed to the IRS. That would translate to $184.1 million going into federal coffers, leaving you with $313.2 million. State taxes could also be due, depending on where the ticket was purchased and where you live. While some jurisdictions have no income tax — or don’t tax lottery winnings — others impose a top tax rate of more than 10%. However, the winner would end up with more money than most people see in a lifetime or two. And, of course, you probably won’t have to worry about how much the jackpot would actually yield — the chance of a single ticket matching all six Powerball numbers drawn is about 1 in 292 million. Meanwhile, the Mega Millions jackpot is $87 million ($42.8 million cash) for Tuesday night’s drawing. The chance of your ticket hitting the jackpot in this game is about 1 in 302 million.
