Tomorrow night (Wednesday, 1.13.2016), I’m going to win the Powerball jackpot that may be as high as $1.3 Billion. Of course, there are hundreds of millions of other people (you, among them, likely) who think they (you) are going to be the winner. Before you start plans to expand your business, you may want to sit down with a team of your most trusted legal, tax and financial advisors. Not only will they help you preserve (and grow) as much of your winnings as possible, they will reveal to you that your $1.3 Billion prize could end up being as much as one billion dollars less if you take your winnings in a lump sum and live in a state and city with an income tax. (See note at end of post for our actual opinion of Powerball.)
Below, see how Kiplinger.com breaks down the math.
Congratulations, you’ve won (before taxes)
First, let’s celebrate before getting to the fine print. You’ve surpassed odds equal to being abducted by aliens from another galaxy and have just won the $1.3 Billion Powerball jackpot.
$1.3 Billion | Your prize if you opt for annuity payments over 30 years (before taxes)
$806 Million | Your prize if you opt for a lump sum payment (before taxes)
But wait, there’s less
You’re about to learn all about income taxes.
($320 Million) | The federal taxes you’ll pay on you $806 Million winning (thanks for lowering the deficit)
$486 Million | Lump sum payment after federal taxes
Congratulations, residents of the states listed below
If you live in one of these states, you are free to start spending your money as you have no state income tax (but you knew that).
- New Hampshire
- South Dakota
*Alaska and Nevada don’t sell Powerball tickets, but residents can buy them out-of-state.
Congratulations, residents of California and Pennsylvania
California and Pennsylvania winners get a break because those states exempt state lottery winnings from state income taxes, as long as you buy your tickets in state.
Sorry, residents of all other states, we’re not finished subtracting from your winnings
(3% to 8.5%) | Range of state income tax rates
(3.876%) | City income tax rate for New York City (example of city income tax)
And the losing winner is…
While complaining about winning $400 Million is something you never expected to do, when you write those tax checks totaling nearly $1 Billion, you’ll decide who the real winner is, no matter whose Powerball number turns up. Considering all the potential income taxes at the federal, state and city level, here is your take home winnings. But I promise, I won’t complain.:
$415 Million | After-tax lump-sum winnings in New York State (8.82% income tax)
$384 Million | After-tax lump-sum winnings if you live in New York City
Note: This post is served up with a dash of humor to underscore our belief that you’ll be wasting your money by purchasing Powerball tickets. We agree with this opinion shared via LATimes.com:
“The lottery (succeeds) on a well-understood facet of human nature: people don’t understand odds. They pay less attention to the probability of a given event than the consequences if it takes place. The odds of a terrorist incident on a plane come to 1 per 16.6 million departures, statistics guru Nate Silver calculated in 2009, but people tend to focus on the outcome — hundreds of passengers perishing at once — than on the probabilities.”
(File Photo: Mario Villafuerte/Getty Images via ThinkStock)