After three months without a lottery winner, the Powerball jackpot has hit an estimated $1 billion.
It’s only the fifth time a Powerball jackpot has swelled to the $1 billion mark and marks the fifth largest Powerball jackpot in history. The estimated cash value of Monday’s drawing is around $483.8 million.
The odds of winning the jackpot are a painfully low 1 in 292.2 million, but the rare winner will have to contend with a litany of regulations around how lottery winnings are taxed.
How does Powerball work?
Powerball is offered in 45 states and Washington, D.C., the Virgin Islands and Puerto Rico. Tickets cost $2 each and can be purchased typically up to one to two hours ahead of the drawing. The Powerball drawing takes place every Monday, Wednesday and Saturday at 10.59 pm ET, and the winner’s ticket must match all six numbers that are played in the drawing.
If there’s a winner, they can choose between receiving a cash lump sum payment worth around $483.8 million, or receiving an estimated $1 billion over the course of 30 years through an annuity. Through the annuity, the winner will get a one time lump sum payment and then 29 payments over the course of 29 years, with a 5% increase in payment every year.
Most winners choose to receive their winnings in a lump sum.
Whether or not they opt for the cash lump sum or 30-year annuity, the Powerball winner will have to account for taxes, which will drastically change how much of their lottery spoils they can actually enjoy.
There are only eight states that don’t tax lottery winnings — Washington, South Dakota, California, Wyoming, Tennessee, Florida, Texas and New Hampshire. But each state does have their own tax laws, which could eat into the winner’s earnings.
Conversely, New York state taxes lottery winnings at a whopping 8.82% — by far the highest lottery tax of any participating state. However, if the winner’s lottery prize is less than $5,000, it isn’t subject to the state’s income tax.
Among the states with the highest lottery taxes are Maryland, which taxes lottery winnings at 8.75%, Washington D.C. (8.5%) and Oregon (8%).
Regardless of which state the winner is in, they will have to pay federal taxes on their lottery prize. The IRS withholds 24% of winnings, but if the winner receives a large jackpot and chooses to receive their earnings in a lump sum, they can be subject to a larger federal income tax, often 37%.
