You’ve probably heard by now that the Powerball Lotto has reached a historic draw amount at a staggering 1.5 billion dollars. However, while that is a fortune to most people, before you start making plans for your windfall you should know that taxes will leave you with considerably less than that.
To get even close to the 1.5 billion dollar payout, you would first need to opt for taking your winnings in the installments, accumulating in 30 payments over 29 years over the immediate lump sum. If you choose the lump sum, the prize money drops 38 percent to 930 million.
However, that’s not all that’s taken off your winnings. You then have to deal with the federal tax bill as lottery winnings are seen as regular income which, according to Melissa Labant with the American Institute of Certified Public Accountants, means it’s subjected to the highest federal tx rate.
‘If they win the jackpot, they’re going to be subjected to the highest federal tax rate of 39.6 percent. It’s a lot more significant than folks expect. You’re not the type of consumer the US government is looking to give a tax break to,’ said Labant, director of tax advocacy.
The U.S. government also automatically withholds 25 percent of the winnings which means you’d only be taking home $232.5 million if you accepted the lump sum.
Also, come tax season in April 2017, you’ll be expected to pay federal taxes which make up about 14.6 percent of your winnings. So save about 135.8 million dollars, you’ll be needed it.
Finally, you’ll have to factor in state taxes which will shave off an additional 15 percent. This means, if you took the lump sum, you could end up with just 422.2 million. Still quite a fortune but not the 1.5 billion that was advertised.