The $245 Million Powerball Winner Faces a Steep Tax Bill
Thursday August 16th 2018Someone in New York will have popped the champagne corks this week after winning a Powerball jackpot worth just over $245 million in the draw on Saturday 11th August. The winner is yet to come forward to claim their prize, so little is known apart from the fact that the lucky ticket was bought at a Stop & Shop in Staten Island. What is certain is that the winner will be looking at an eye-watering tax bill.
High NY Taxes Will Sting the Winner
All jackpot winners in the US - whether that’s for Powerball, Mega Millions, or any other multimillion-dollar lottery - will be required to pay federal taxes upon claiming their prize. In New York, 24 percent of the prize money is taken for taxes straight away, with further payments - usually around an extra 12-13 percent - due at the end of the tax year.
In addition to federal taxes, most states that participate in Powerball levy their own tax, and it happens that New York has the highest rate of all at 8.82 percent. This is taken on top of the federal tax and is calculated from the total value of the prize, not after other taxes have been applied. If that’s not enough, residents of New York City - such as the latest winner - also pay a local tax of 3.876 percent, taking their total tax obligation to around 50 percent of the prize.
It means that last week’s winner will receive far less than the advertised jackpot amount, especially if they take the cash lump sum option, which in this particular case is valued at $148 million. If they opt for the lump sum, they will take home around $75 million, which is in itself still an incredible amount of money but works out at just 30 percent of the advertised jackpot.
If the winner decides to go for the annuity, which would see them receive the full advertised jackpot over 29 years, they will still be taxed in the same way, but the additional $97 million that they would receive to start with would certainly soften the blow.
How Much Tax Do Other States Take?
After New York, Maryland has the highest state tax rate at 8.75 percent, followed by Washington D.C. (8.5 percent) and Oregon (8.0 percent). If you’re a resident of California, Florida, New Hampshire, Puerto Rico, South Dakota, Tennessee, Texas, the U.S. Virgin Islands, Washington State, or Wyoming, then you’re in luck, as they do not levy a tax on lottery winnings at all.
Aside from these states, North Dakota and New Jersey levy the lowest taxes at 2.9 percent and 3.0 percent respectively. If you’re reading this and thinking that an 8.0 percent tax isn’t so bad, just remember that for the latest winner, this works out at nearly $20 million.
When it comes down to it, most winners will probably be more than happy with their prize even after it has been diminished by taxes, but it’s worth being aware of how much you will have to pay should you win, just to avoid any nasty surprises when you turn up at your state lottery offices with your lucky ticket in hand.
You can find a full list of state tax withholdings here, but bear in mind that your individual circumstances could impact how much tax you will be liable for. For that reason, it would be a good idea to consult a professional financial advisor in the event that you win, so that the process of claiming your prize and paying your dues goes as smoothly as possible.
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