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Two winners nab $687.8 million Powerball jackpot. Here's the tax bill

Key Points
  • The $687.8 million that two Powerball players won in Saturday night's drawing marks the third-largest prize in the game's history.
  • The federal government will withhold 24 percent of the winnings for taxes. However, winners can expect to owe the difference between that amount and the top federal income tax rate of 37 percent.
  • State taxes in both Iowa and New York will reduce the winners' take further by at least 8.5 percent.
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Two Powerball players woke up an awful lot richer on Sunday morning.

After 21 weeks with no jackpot winners in the game, Saturday night's drawing yielded two tickets that beat the odds and matched all six winning numbers (8, 12, 13, 19 and 27, with a Powerball of 4). The chance of winning is 1 in 292 million.

The final jackpot came in at $687.8 million, which will be split between the winners — one in Iowa and one in New York. The haul marks the third-largest prize in the game's history and the fourth-largest U.S. lottery jackpot ever.

It also comes on the heels of a single ticket winning the $1.537 billion Mega Millions jackpot last week. For that game's next drawing on Tuesday night, the amount up for grabs seems paltry in comparison: $45 million. Powerball's jackpot also has reset to $40 million for Wednesday night's drawing.

Justin Sullivan | Getty Images

Of course, the two winners splitting the $687.8 million Powerball jackpot won't end up with the advertised amount. Whether they take their haul as a lump sum or as an annuity spread out over three decades, federal and state taxes will eat up a big chunk of their windfall.

"Winners are surprised by how much is withheld in taxes from the initial payment, and then how much more is owed with they file their taxes the following year," said Jason Kurland, a partner at Rivkin Radler, a law firm in Uniondale, New York.

"All of the numbers involved in these huge jackpots are staggering, and the taxes are no exception," said Kurland, who helps big lottery winners navigate their windfall.

If the winners go with the immediate lump sum payment, they would each start with $198.1 million (versus the $343.9 million they'd each get if they were to choose the annuity). The federal government will shave off 24 percent right off the bat — and more will be due at tax time.

largest lottery jackpots updated obrien

Rank Amount Date won Game Winner locations
1$1.586 billion"Jan. 13 2016"PowerballCA-FL-TN
2$1.54 billion"Oct. 23 2018"Mega Millions SC
3$758.7 million "Aug. 23 2017 "Powerball MA
4$687.8 million"Oct. 27 2018"PowerballIA-NY
5$656 million "Mar. 30 2012 "Mega Millions KS-IL-MD
6$648 million "Dec. 17 2013 "Mega Millions CA-GA
7$590.5 million 18-May-13Powerball FL
8$587.5 million "Nov. 28 2012 "Powerball AZ-MO
9$564.1 million "Feb. 11 2015 "Powerball NC-PR-TX
10$559.7 million "Jan. 6 2018 "Powerball NH

Winners can expect to owe the difference between that withholding and the top federal tax rate of 37 percent (applied to adjusted gross incomes of $500,000 or more). After that full rate is applied, the winner's take would be reduced by $73.3 million to $124.8.

On top of that are state taxes.

In this case, Iowa will withhold 5 percent of the win. However, its top income tax rate of 8.98 percent (8.53 percent as of 2019) will mean more owed at tax time. Applying that top current rate would reduce the Iowa winner's take by another $17.8 million to $107 million.

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New York, meanwhile, will withhold 8.82 percent in taxes, which would reduce the winner's haul by $17.5 million to $107.3 million. And winners could face additional local taxes if they live in New York City (about 3.88 percent) and Yonkers (1.32 percent), according to lottery site USAMega.com.

In other words, both winners can expect to pay north of 45 percent in taxes.

They also will have a harder time protecting their privacy — neither state allows winners to claim their prize anonymously.

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Lottery taxes 2018 version GRANT