The Powerball jackpot for Monday’s drawing is $905 million, the eighth largest grand prize in the game’s history. The nearly $1 billion jackpot is for a single-winning ticket who chooses an annuity option, paid over 30 years. Winners almost always opt for cash prizes, which would be $391.9 million.
Tax Implications
However, the windfall would significantly shrink after taxes. The prize is subject to an automatic federal withholding, with the IRS levying 24% on winnings of more than $5,000. If you choose the $391.9 million cash option, the 24% withholding automatically reduces your prize to about $297.84 million, with $94 million going straight to Uncle Sam.
And when you file your 2026 returns, plan on paying another 13% in federal taxes. That’s because the millions you win from the lottery pushes you into the top tax bracket of 37%. Your total lottery prize after paying the federal income tax is $259.12 million.
There are also state taxes in most jurisdictions, which range from 2.9% in North Dakota to 10.9% in New York. But if you’re lucky enough to live in California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming, you won’t pay any state taxes on your winnings.
Lottery Pools and Tax Planning
If you join a lottery pool with friends or co-workers, it’s essential to document that the entire windfall isn’t yours or you’ll be responsible for income tax withholding on the entire winnings. Also, if you collect the total winnings and then allot everyone else their share, the IRS may assume that you’re giving the money away, which can result in getting hit with a gift tax.
The tax applies to gifts you give over $13.99 million, or $27.98 million if you are a married couple, for 2025. And it’s taxed at a rate of 40%, according to the IRS. Have everyone enter into the pool with a written contract defining his or her shares, which you can then provide to the IRS if necessary.
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.
Original reporting: NBC Connecticut — read the source article.
