The $900 Million Powerball Is A Mirage: How Taxes Could Shrink Your Dream Jackpot

As anticipation peaks for Monday night’s $900 million Powerball draw, would-be billionaires should keep one crucial thing in mind: Uncle Sam will want his share. So, before you start fantasizing about a billionaire lifestyle, keep in mind that the jackpot will shrink significantly after taxes.

Opting for a lump-sum payout gives you a pre-tax cash value of $465.1 million, according to the Powerball website — almost half of the $900 million prize.

Alternatively, receiving the prize in annual installments over 30 years will grant the full $900 million before tax deductions.

What about the taxes? Well, a chunk of your winnings will be siphoned off by the IRS immediately. For winnings exceeding $5,000, the tax body mandates a 24% withholding.

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If you take the $465.1 million cash option, that means around $111.6 million in taxes will be deducted at source (TDS).

We're not done yet — imagine you're single, and live in Chicago, Illinois.

After the initial IRS deduction, you'd be left with $353,500,000.

In Illinois, lottery income is taxed like other gambling income, with initial withholdings at a state rate of 4.95% — but we don't take that from the $353.5 million, we take it from the initial $465.1 million.

After initial federal and state deductions, you're left with $330,453,550.

That means you're walking away with 36.72% of the actual $900 million jackpot.

But, Uncle Sam may not be done with you yet.

Winning the lottery thrusts you into the highest federal tax bracket, which for 2023 is 37%. The 37% rate applies to individuals with taxable income exceeding $578,126 or married couples filing together earning over $693,751.

However, the full 37% rate doesn’t apply to your entire income. Singles will owe $174,238.25, plus 37% of the amount over $578,125, while couples face a tax bill of $186,601.50 plus 37% of the amount over $693,750.

Considering the 24% federal and the 4.95% state withholding, your remaining tax bill could still run into millions, depending on how much you're already making.

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