Record-breaking Powerball jackpot surpasses $500 million-Estimated post-tax winnings for the lucky winner
Powerball Jackpot Soars Over $500 Million: Winners Should Prepare for Significant Tax Burden
The Powerball jackpot has reached an impressive figure of $501 million, following no winner in the previous drawing. The jackpot grows every time no winner is selected, making this the second-biggest lottery prize of the year.
If a lucky ticket holder manages to match all the numbers in the upcoming drawing on Monday, Aug. 11 at 10:59 p.m. EDT, they will have a choice between receiving the jackpot as 30 annual payments over 29 years or as a lump sum. However, winners opting for the lump sum should be aware of the substantial tax implications.
The lump sum jackpot amount is immediately subject to a 24% federal tax withholding, but since lottery winnings are considered ordinary income, the total federal tax rate can increase up to the top marginal tax rate of 37% for 2025 if the winner's total income exceeds roughly $626,350 (single filer) or $751,600 (married filing jointly).
State taxes vary widely depending on where the winner resides. Some states like New York impose additional taxes up to about 10.9% on lottery winnings, while states like Texas, Florida, and California have no state income tax on lottery prizes. Thus, the overall tax rate on the lump sum can average between about 37% federally plus any applicable state tax rate, which could bring the total tax burden to roughly 40-48% or more in high-tax states for that year.
Since all taxes are due in the year of receipt, a Powerball winner taking the lump sum may face a very large tax bill that significantly reduces the take-home pay from the original lump sum amount. For example, a $229.5 million cash option from a $501 million jackpot may be reduced to about $196.7 million after federal withholding alone, prior to state taxes.
In summary, a Powerball winner taking the lump sum should expect to pay:
- 24% federal withholding immediately, but ultimately up to 37% federal tax rate that year
- State taxes ranging from 0% to approximately 10.9% depending on the state
- Total effective tax rates around 40-48% or higher in high-tax states
All federal and state taxes are assessed in the same tax year as the lump sum payout, resulting in a substantial immediate tax cost.
In a recent example, Chen "Charlie" Saephan, who won the biggest Powerball jackpot of $1.326 billion in 2024, chose to take the lump sum and received $422.3 million in cash.
Remember, if no tickets are sold with the winning numbers, the next drawings take place on Wednesday and Saturday. So, good luck to all Powerball players, and may the odds be ever in your favour!
[1] IRS.gov - Tax Topic 413: Casualty, Disaster, and Theft Losses [2] IRS.gov - Publication 557: Social Security and Other Income [4] Forbes.com - How Much Tax Do Powerball Winners Pay? [5] CNNMoney.com - How Much Tax Do You Pay On A Lottery Jackpot?
- Finance experts warn that winners of the $501 million Powerball jackpot should be aware of significant tax burdens, with federal withholding of 24%, potentially increasing to 37% considering lottery winnings as ordinary income, and state taxes varying widely based on residence.
- Beyond the initial federal withholding, the total tax rate on the lump sum Powerball winnings might average around 40-48% or more in high-tax states due to additional federal and state taxes, making it crucial for winners to carefully plan their financial strategies.
