11/09/22 $2.04 Billion Powerball Winner Takes Home $628 Million After Taxes

11/09/22 $2.04 Billion Powerball Winner Takes Home $628 Million After Taxes: Contents

$2.04 Billion Powerball Winner Takes Home $628 Million After Taxes

Winning the massive $2.04 billion Powerball jackpot would be life-changing, but many people wonder just how much of the pot will be eaten up by taxes. That can vary a lot, depending on what state the winner lives in and how they are paid. The winner can pick a cash lump sum or payments over time.

The lump sum is only about half the alluring top line prize. If the winner picks the lump sum, that $2.04 billion drops to $997.6 million. Of course that is before taxes. To get the full $2.04 billion instead, the winner would have to pick the 30 annual payments. That works out to about $68 million a year, again, before taxes. Most winners seem to take the cash, but whether it is cash or installments, what’s the tax bill?

From the start, the winner losses 24% federal tax withholding that goes off the top to the IRS. On the $2.04 billion win, the cash election is really $997.6 million. Tax withholding of 24% amounts to $239.4 million, leaving $758.2 million. But the IRS isn’t done yet. Although only 24% is withheld and sent directly to the IRS, our lucky winner will owe a lot more in April of 2023. Since federal income tax rates go up to 37%, and the winner is in the top 37% bracket, another 13%—$129.7 million more in taxes—is due on April 15.

That’s the spread between the 24% withholding tax rate and the 37% tax rate. That’s a big check to write on April 15. Winners who do not plan ahead may have trouble paying their taxes the year after they win. That’s one reason the winner should bank some of the money to be sure they have it on April 15. If you add the 24% withholding tax plus the 13% extra tax the winner will pay April 15 together, you get a federal tax of $369.1 million.

The winner takes home $628.5 million after federal tax. Then, depending on whether the winner’s state taxes lottery winnings, he may have to add state taxes too. Most states have an income tax, from California’s high 13.3% on down. But as harsh as California is, this is one place where California tax law is surprisingly favorable: Powerball winnings are exempt in the state. Just think if California had taxed the win, that would have added another $132.7 million in taxes. But if the lucky winner resides in another state that taxes Powerball winnings, the tax bill could continue to climb.

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$2.04 Billion Powerball Winner Takes Home $628 Million After Taxes (forbes.com)

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