The $1.3 billion Powerball jackpot has generated a lot of speculation about the best ways to spend that much money. In reality, though, the winner will end up with far less than that. If you bought a ticket for the next drawing and are feeling lucky, read this before you buy a private island or professional sports team.
$1.3 billion is the value of annuity payments over 30 years. If you opt for an immediate lump-sum cash payment, your payout will be a mere $806 million–before taxes. And make no mistake: Your tax bill will be significant and unavoidable.
The top federal tax rate is 39.6% on 2016 income of more than $415,050 for individuals ($466,950 for married filers). That means you’ll pay about $320 million in federal income taxes, reducing your spendable winnings to about $486 million. (The IRS will automatically take 25% of your winnings, and you’ll owe the rest at tax time).
Your state may want a piece of the pie, too. The biggest hit applies to New York residents, who would have to pony up 8.82% of the jackpot, reducing an Empire State resident’s winnings even further to $415 million. New York City collects an additional 3.876% in local income taxes, whittling a Big Apple resident’s take to $384 million.
Residents of Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming are off the hook because those states have no income taxes. (Alaska and Nevada don’t sell Powerball tickets, but residents can buy them out-of-state.) California and Pennsylvania winners also get a break because those states exempt state lottery winnings from taxes–as long as you buy your tickets in state. Other states impose taxes ranging from 3% to 8.5%. Maryland and Arizona withhold taxes on lottery winnings from non-residents.
(Source: Tribune Content Agency, LLC)