Whoever is holding the ticket for Powerball’s $366.7 million jackpot will have to share! Even though there was only a single winner of this recent drawing, the winner will for sure be paying out the IRS.
Powerball Background
The lottery’s top game prize was won last Wednesday after being run up for about two months without a winner. Even though the jackpot was able to reach $366.7 million before winning, there is no chance the winner will receive that amount. When someone wins the Powerball, they are presented with two separate options; take the winnings as an annuity of 30 payments over 29 years, or take an immediate, reduced cash lump sum.
Tax Implications
Before we begin to break down the tax implications of the Powerball winnings, it is important to know the cash option for this winning was $208.5 million. The jackpot would then be subject to a federal tax withholding of 24%, which would further reduce the winnings by a little over $50 million. Additionally, Vermont would likely enforce a 6% tax withholding which would offer another $12.5 million up in taxes.
Past this, there would likely be additional taxes due during filing season. This would be because the top federal marginal tax rate is 37%, which applies to income above $523,600. In other words, the 13% difference (or $27.1 million) between the federal withholding and the top marginal tax rate would need to be paid in taxes when filing. Additionally, Vermont’s top rate is 8.75%, meaning the 2.75% (or roughly $575,000) would also need to be paid at tax time.
Wrap Up
Winning the Powerball, not only gets you paid but also the government. Through the taxes mentioned in this article, roughly $90 million would need to be paid out to both federal and state tax agencies. There are various ways that these taxes can be reduced, however, without the proper CPA in your corner, you’d likely be facing the highest tax liability.