Additional Coverage:
- Powerball Jackpot Hits $1.1 Billion For Labor Day Draw—Here’s How Much The Winner Could Take Home After Taxes (forbes.com)
Powerball Jackpot Soars to $1.1 Billion for Labor Day
The Powerball jackpot has reached a staggering $1.1 billion for Monday’s Labor Day drawing, marking the largest lottery prize of the year and the fifth-largest in Powerball history. However, the lucky winner (facing odds of one in 292.2 million) will likely take home considerably less after taxes.
A winner matching all five white balls and the red Powerball can choose between 30 annual payments or a one-time lump sum cash payment of approximately $498.4 million.
Most winners opt for the lump sum, but even that hefty amount shrinks significantly after taxes. A mandatory 24% federal tax withholding would reduce the winnings to about $378.7 million. Depending on the winner’s income and deductions, the final payout could be as low as $313.9 million after the top 37% federal marginal tax rate is applied.
Those who choose annual installments would receive an average of $23.1 million per year, also subject to the 37% federal tax rate.
State taxes further complicate the picture. Some states levy additional taxes on lottery winnings, ranging from a high of 10.9% in New York (reducing winnings by $54.3 million) to a low of 2.5% in Arizona (a $12.4 million reduction). Residents of states like California, Florida, and Texas, however, are exempt from state taxes on lottery winnings.
The next Powerball drawing is scheduled for Monday night. Mega Millions also offers a substantial prize, with a $302 million jackpot up for grabs on Tuesday. The cash option for that prize is $136 million, which would be reduced to $103.3 million after the 24% federal withholding, or $85.6 million after applying the highest federal marginal tax rate.
This impressive Powerball jackpot is the fifth-largest in the game’s history. Notably, the fourth and seventh-largest jackpots, at $1.3 billion and $842 million respectively, were awarded just last year, in April and January.
The surge in massive lottery jackpots in recent years is partly due to rule changes implemented by both Mega Millions and Powerball, designed to increase potential winnings. These changes have adjusted the odds and prize structures, leading to more frequent and larger jackpots.