The $900 Million Powerball Is A Mirage: How Taxes Could Shrink Your Dream Jackpot

Zinger Key Points
  • A lump-sum payout for the $900 million jackpot will leave you with $465.1 million. But then there's taxes.
  • The IRS takes 24% immediately, and depending on where you live, your state takes its piece too.

As anticipation peaks for Monday night’s $900 million Powerball draw, would-be billionaires should keep one crucial thing in mind: Uncle Sam will want his share. So, before you start fantasizing about a billionaire lifestyle, keep in mind that the jackpot will shrink significantly after taxes.

Opting for a lump-sum payout gives you a pre-tax cash value of $465.1 million, according to the Powerball website — almost half of the $900 million prize.

Alternatively, receiving the prize in annual installments over 30 years will grant the full $900 million before tax deductions.

What about the taxes? Well, a chunk of your winnings will be siphoned off by the IRS immediately. For winnings exceeding $5,000, the tax body mandates a 24% withholding.

Read also: He Quit A 6-Figure Finance Job To Make YouTube Videos: Now He’s Making More Money Than Ever Before

If you take the $465.1 million cash option, that means around $111.6 million in taxes will be deducted at source (TDS).

We're not done yet — imagine you're single, and live in Chicago, Illinois.

After the initial IRS deduction, you'd be left with $353,500,000.

In Illinois, lottery income is taxed like other gambling income, with initial withholdings at a state rate of 4.95% — but we don't take that from the $353.5 million, we take it from the initial $465.1 million.

After initial federal and state deductions, you're left with $330,453,550.

That means you're walking away with 36.72% of the actual $900 million jackpot.

But, Uncle Sam may not be done with you yet.

Winning the lottery thrusts you into the highest federal tax bracket, which for 2023 is 37%. The 37% rate applies to individuals with taxable income exceeding $578,126 or married couples filing together earning over $693,751.

However, the full 37% rate doesn’t apply to your entire income. Singles will owe $174,238.25, plus 37% of the amount over $578,125, while couples face a tax bill of $186,601.50 plus 37% of the amount over $693,750.

Considering the 24% federal and the 4.95% state withholding, your remaining tax bill could still run into millions, depending on how much you're already making.

Read next: How A Gen Z Professional Boosted Her Salary From $72,000 To $186,000 In 5 Years

Photo: Shutterstock

Market News and Data brought to you by Benzinga APIs
Posted In: EntertainmentNewsTopicsPersonal FinanceGeneralJackpotlotteryMegamillions.comPowerball
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!