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Powerball jackpot hits $900 million. Here’s the tax bill if you win

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The Powerball jackpot has reached $900 million by July 17, 2023.

Justin Sullivan | Getty Images

The Powerball jackpot has soared to an estimated $900 million after Saturday’s drawing went by without a winner.

It’s still the third-largest prize in the game’s history ahead of Monday night’s drawing, according to Powerball. But the windfall will shrink significantly after taxes.

If you choose the lump sum payout, the estimated pretax cash value is $465.1 million, whereas 30 years of annual payments are worth an estimated $900 million before taxes.

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If you win the jackpot, experts suggest working with a tax professional, financial advisor and estate planning attorney immediately.

“It’s all about protection and paying the least amount of taxes possible, so working with professionals is very important,” said certified financial planner John Chichester Jr., founder and CEO of Chichester Financial Group in Phoenix.

He said winners who choose the 30-year annuity payments option may have “a lot more flexibility” for tax planning.

The chances of winning Powerball’s grand prize are 1 in about 292 million.

Roughly $111.6 million goes straight to the IRS

Winners need to plan for a hefty upfront federal withholding. The IRS requires a mandatory 24% withholding for winnings of more than $5,000.

If you choose the $465.1 million cash option, the 24% withholding automatically reduces your prize by roughly $111.6 million.

Chichester said it’s similar to the mandatory withholding for required minimum distributions from retirement accounts. But since your actual tax bracket may be higher, you can owe additional levies at tax time.

“That’s exactly what happens with the lottery,” he said. “The 24% [withholding] is not the only tax bill” because the highest federal tax bracket includes another 13%.

How to figure out your federal tax brackets

Here are the odds of you winning the lottery

You may also owe state taxes, depending on where you live and where you purchased the ticket. Some states have no income tax or don’t tax lottery winnings, but others have top-income state tax brackets exceeding 10%. 

Powerball isn’t the only chance to win big. The jackpot for Tuesday night’s Mega Millions drawing now stands at an estimated $640 million. The chance of hitting the jackpot in that game is roughly 1 in 302 million.

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