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Tax Tips

How Much Tax You Will Pay on Your Lottery Winnings

The federal government wants to take a bite of that big Powerball payout. Your state might, too.


The $1.5 billion Powerball jackpot has generated a lot of speculation about the best ways to spend that much money. In reality, though, the winner will end up with far less than that. If you bought a ticket for the next drawing and are feeling lucky, read this before you buy a private island or professional sports team.

SEE ALSO: 6 Things You Must Know About Winning the Lottery

$1.5 billion is the value of annuity payments over 30 years. If you opt for an immediate lump-sum cash payment, your payout will be a mere $930 million—before taxes. And make no mistake: Your tax bill will be significant and unavoidable.

The top federal tax rate is 39.6% on 2016 income of more than $415,050 for individuals ($466,950 for married filers). That means you’ll pay about $369 million in federal income taxes, reducing your spendable winnings to about $561 million. (The IRS will automatically take 25% of your winnings, and you’ll owe the rest at tax time).


Your state may want a piece of the pie, too. The biggest hit applies to New York residents, who would have to pony up 8.82% of the jackpot, reducing an Empire State resident’s winnings even further to $479 million. New York City collects an additional 3.876% in local income taxes, whittling a Big Apple resident’s take to $443 million.

Residents of Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming are off the hook because those states have no income taxes. (Alaska and Nevada don’t sell Powerball tickets, but residents can buy them out-of-state.) California and Pennsylvania winners also get a break because those states exempt state lottery winnings from taxes—as long as you buy your tickets in state. Other states impose taxes ranging from 3% to 8.5%. Maryland and Arizona withhold taxes on lottery winnings from non-residents.

SEE ALSO: State-by-State Guide to Taxes on Income, Property, Everything You Buy