The Powerball jackpot is now $343 million.
Next Wednesday's drawing could see a lucky winner, who will part with a tax bill that's far higher than most people see in a lifetime of earnings.
Here's what that looks like. First, the winner chooses how they'd like to be paid out: spread out over 30 years of payments or an immediate lump sum. Taking it all at once means getting less than the full $233.3 million. Either way, the winner can kiss 24% of that money goodbye.
More from Personal Finance:
This Social Security mistake could result in years of regret
Holiday debt could take years to pay off
How to find a great career in your golden years
"There is still a sizable tax bill coming, for sure," said April Walker, lead manager for tax practice and ethics at the American Institute of CPAs. "Winners have to plan for any additional amount that will be due ... to the IRS and the state."
Based on a $343 million jackpot drawing, the cash option — which most winners go with — would be, again, $233.3 million. That 24% federal withholding of about $56 million would leave you with a cool $177.3 million or so.
Assuming you had no reductions to your taxable income — such as large charitable contributions — another 13%, or around $30 million, would be due to the IRS at tax time (which would be April 2021 for jackpots claimed in 2020).
So Uncle Sam would get around $86 million, and you'd still rake in about $147.3 million.
However, state or local taxes would be on top of that. Those levies range from zero to more than 8%, depending on where the ticket was purchased and where the winner lives. In other words, you could end up paying more than 45% in taxes.
And, like the federal withholding rate on jackpot wins, the amount withheld for state taxes might also be less than what you'll owe.
"They might withhold at, say, 5%, but the rate you pay might be 6%," Walker said.
There are ways to reduce the amount of winnings that gets taxed, although not many.
The charitably inclined can lower their taxable income by making a cash donation of up to 60% of their adjusted gross income and carry forward, up to five years, any excess amount.
Some lottery winners set up their own charitable foundation or similar option, such as a donor-advised fund, and donate a portion of their windfall to it.
"That would be a way to direct charitable contributions over a period of time but take the deduction [for the current tax year]," Walker said.
Despite forking over a hefty amount to federal and state coffers, the after-tax amount would likely be life-changing. Experts say jackpot winners should assemble a team of experienced professionals — an attorney, a tax advisor and a financial advisor — to help navigate their sudden wealth.
