The Powerball lottery jackpot has surpassed $1 billion for only the second time ever. How much you'll actually take home if you win will vary based on which state you live in, and whether or not it charges income taxes on lottery jackpots.
The next draw takes place Wednesday night at 10:59 EST. If someone wins, they'll receive the fourth-largest payout in U.S. lottery history, according to Multi-State Lottery Association, which runs Powerball. To win, you must match all six numbers from the draw.
Winners can choose to take the full jackpot amount as an annuity for 30 years or take a lump sum worth roughly 51% less than the jackpot total, according to Powerball's calculations.
While it might seem counterintuitive to take less total money, many winners choose to do so after consulting with a financial advisor. That's because the money can be reinvested right away and grow with compound interest.
Either way, the winnings you'd take home would vary based on the total taxes incurred in your state.
All winners must pay federal taxes. There are only eight states that don't charge state taxes on lottery winnings:
- New Hampshire
- South Dakota
Unlike other states that charge between 2.9% an 8.82% in taxes on winnings, winners in these states would take home the most money.
As for federal taxes, there's an upfront 24% withholding tax on the winnings. But with such a large jackpot, you'd also likely owe a total of 37% in federal taxes on your 2022 tax return, which is the top rate for high income earners.
If you choose the annuity, which pays the most over time, you'd take home $756,000,000 in states that don't charge income tax on lottery winnings, according to Powerball. If you choose the lump sum payment, you'd take home $367,899,840.
There are four places that levy local income taxes of 8% or more on lottery winnings:
- New York: 8.82%
- Maryland: 8.75%
- Washington D.C.: 8.5%
- Oregon: 8%
For the annuity option, that translates into winnings between around $660,000,000 and $650,160,000, depending on where you live.
New York residents would owe the most in taxes if they end up with the winning ticket. Choosing the lump sum option in New York state would amount to $316,393,862 after taxes — barely 26% of the total jackpot and $51.5 million less than states that don't charge taxes on lottery prizes.