Powerball prizes are subject to tax so it is not just a case of looking at the advertised amounts to see how much money you would receive if you won. The rate of withholding depends on how much you win and the jurisdiction in which you buy your ticket. A federal tax is levied on all winners of prizes greater than $5,000, while many of the participating states apply their own tax on top of this. In addition, some locations, such as New York City, levy a local tax on lottery winnings.
You can find out how much tax you might have to pay below. As it is such a complex issue, you should consult a financial expert in the event of a big lottery win so that you’re fully aware of your tax obligations.
Federal Taxes on Lottery Winnings
Lottery winnings are treated as income in the United States, so your final tax bill depends on how much money you make in total in a year, not just the amount you win in the lottery. The following table shows the federal tax obligations for a Powerball winner filing as a single taxpayer. The rates you pay may differ depending on your individual circumstances.
|Prize||Federal Tax Obligations|
|$600.01 – $5,000||Winnings must be reported on federal income tax form|
|$5,000.01 and above||24-37%, depending on prize amount|
Federal tax rules are consistent across the U.S. You do not have to pay tax on any prize up to $600, but you must report your winnings to the Internal Revenue Service (IRS) if you win an amount between $600.01 and $5,000. You will be issued a W-2G form to complete with your tax returns.
A federal tax of 24 percent will be taken from all prizes above $5,000 (including the jackpot) before you receive your prize money. You may then be eligible for a refund or have to pay more tax when you file your returns, depending on your total income. If you win the jackpot you will be subject to the top federal tax rate of 37 percent. Players who are not U.S. citizens are subject to an initial federal tax payment of 30 percent rather than 24 percent.
Deductions for Gambling Losses
Playing the lottery is classed as gambling as far as the Internal Revenue Service (IRS) is concerned, which means that you are entitled to a tax deduction on any losses incurred. To file these deductions, you will need to keep an accurate record of your wins and losses, as well as any evidence of them, such as the tickets you bought. You must itemize the deductions on the tax form 1040, obtainable from the IRS website. The losses you deduct cannot exceed your income from all forms of gambling, including but not limited to horse racing, casinos, and raffles.
If you win the jackpot and take the annuity payout, the annual payments will be recorded individually in each tax year, and will count towards your gambling income for that year. This should be taken into consideration when recording wins and losses for tax deduction purposes.
In addition to federal taxes, your Powerball winnings may also be subject to state taxes. It is important to remember that the tax levied on your prize will not only vary by state but also depending on your individual circumstances.
The following table shows the rate of withholding for each participating jurisdiction, along with the threshold for when prizes start to be taxed at a state level.
|State Withholding||Jurisdiction||Threshold for State Tax|
|No state tax on lottery prizes||California, Florida, New Hampshire, Puerto Rico, South Dakota, Tennessee, Texas, U.S Virgin Islands, Washington State, Wyoming||N/A|
|4%||Colorado, Ohio, Oklahoma, Virginia||$5,000|
|3-5%||Mississippi||3% for prizes from $600 to $5,000, 4% for prizes between $5,001 and $10,000, and 5% for prizes above $10,001|
|5%||Arizona, Iowa, Kansas, Louisiana, Maine, Massachusetts, Nebraska||$5,000|
|5-8%||New Jersey||5% for prizes above $10,000 and up to $500,000. 8% for prizes above $500,000|
|6%||New Mexico, Vermont||$5,000|
|6.99%||Connecticut||$5,000 (or winnings of $600 or more that are at least 300 times the amount of the wager placed)|
Use the tax calculator below to calculate how much of your payout you would be taking home following the respective federal and state taxes that are deducted. Just enter the amount you have won and select your state. Then select if this was the jackpot or not, and if it was then choose whether you took the annuity option or cash lump sum.
In addition to federal and state taxes, many cities, counties and municipalities in the United States levy a local income tax. This can vary greatly depending on the location, but in all cases it will be applied on top of any other income taxes. New York City, for example, applies a local tax of 3.876 percent in addition to the top state income tax rate of 8.82 percent and the top federal rate of 37 percent.
This means that a New York resident who opts for the cash lump sum payout of PowerballвЂ™s starting jackpot will end up with a final payout of roughly $8.4 million, just 42 percent of the advertised $20 million ( * During the Coronavirus pandemic, the starting jackpot may be lower than this) prize. Being aware of these rules before you make a prize claim can protect you from the shock of seeing millions of dollars slashed from your prize money.
Taxes for Lottery Pools
If you win a large prize as part of a lottery pool, you are still required to pay taxes on your winnings. Each member of the group will be liable to pay their share of taxes, so everyone will need to report the income when filing their returns. Some states make this easy, as they allow each member of a lottery pool to claim individually through a shared or multiple ownership claim. In these cases the prize money will be paid directly to each member of the pool and the appropriate taxes will be withheld at the point of payment.
It gets slightly more complicated when the entirety of the prize money is paid to one representative, who is then responsible for distributing the winnings to other people. In these cases, anyone receiving a share of the money who is not named as the actual winner will need to complete IRS form 5754 to report the income. This will need to be filled out by every member of the group except the named claimant before the prize money is distributed. Form 5754 must be filed by December 31st of the tax year in which the prize was paid.
In the event of a big prize win, you should contact your state lottery for further guidance about your tax obligations and what you need to do to report the income correctly.
Find out how much tax you would pay on your Powerball win using this online Powerball Tax Calculator
Powerball Payout and Tax Calculator
If you are lucky enough to have beaten the Powerball odds and won the jackpot, then you’ve come to the right place. We’ve crafted this tool so that you can compute how much tax you have to pay after winning the lottery. Find out and compare the total payout you would receive if you chose the lump sum or annuity option – followed by a payout chart displaying all 30 annuity payments.
To use our Powerball calculator, just type in the advertised jackpot amount and select your state and the calculator will do the rest.
After you are done, check out our guide on the best lottery prediction software for tools that will help increase your odds of winning – significantly.
Lump Sum/Cash Option Calculator
Annuity Calculator (Totals)
|Federal Taxes Paid (24%)||$240,000|
|Arizona Taxes Paid ( 5% )||$50,000|
|Net Payout (after taxes)||$710,000|
Annuity Calculator (Per Year)
|Year||Gross Payout||Federal Taxes||Arizona Taxes||Net Payout|
|1||$15,051||$3,612||$753||$10,687 per year|
|2||$15,804||$3,793||$790||$11,221 per year|
|3||$16,594||$3,983||$830||$11,782 per year|
|4||$17,424||$4,182||$871||$12,371 per year|
|5||$18,295||$4,391||$915||$12,990 per year|
|6||$19,210||$4,610||$960||$13,639 per year|
|7||$20,170||$4,841||$1,009||$14,321 per year|
|8||$21,179||$5,083||$1,059||$15,037 per year|
|9||$22,238||$5,337||$1,112||$15,789 per year|
|10||$23,350||$5,604||$1,167||$16,578 per year|
|11||$24,517||$5,884||$1,226||$17,407 per year|
|12||$25,743||$6,178||$1,287||$18,278 per year|
|13||$27,030||$6,487||$1,352||$19,191 per year|
|14||$28,382||$6,812||$1,419||$20,151 per year|
|15||$29,801||$7,152||$1,490||$21,159 per year|
|16||$31,291||$7,510||$1,565||$22,217 per year|
|17||$32,855||$7,885||$1,643||$23,327 per year|
|18||$34,498||$8,280||$1,725||$24,494 per year|
|19||$36,223||$8,694||$1,811||$25,718 per year|
|20||$38,034||$9,128||$1,902||$27,004 per year|
|21||$39,936||$9,585||$1,997||$28,355 per year|
|22||$41,933||$10,064||$2,097||$29,772 per year|
|23||$44,029||$10,567||$2,201||$31,261 per year|
|24||$46,231||$11,095||$2,312||$32,824 per year|
|25||$48,542||$11,650||$2,427||$34,465 per year|
|26||$50,970||$12,233||$2,548||$36,188 per year|
|27||$53,518||$12,844||$2,676||$37,998 per year|
|28||$56,194||$13,487||$2,810||$39,898 per year|
|29||$59,004||$14,161||$2,950||$41,893 per year|
|30||$61,954||$14,869||$3,098||$43,987 per year|
Our Powerball Calculator Explained
As you might already know, when a player wins the Powerball jackpot, they have to choose between a single lump sum or 30 annual payments to receive their prize.
Choosing the lump sum, also known as the cash option, reduces the jackpot size to approximately 61% of the original amount, but awards it all at once to the player. On the other hand, the annuity option awards the winner with the full amount or 100% of the jackpot – starting with one initial payment, followed by annual payments over the next 29 years.
Since the lump sum and annuity option award different payouts, it only follows that your tax liability (federal tax + state tax) will also be different for both.
What our Powerball calculator provides is a quick overview of the gross and net (after taxes) winnings you’d receive for both options – allowing you to make a more informed decision when comparing the two.
Finally, as an added feature, our tool also breaks down the annuity option into a handy payout schedule so you know how much you’ll receive each year.
Note: Payouts are approximations. For example, large charitable donations can be written off, meaning reduced tax liabilities.
The Powerball payout chart below captures the different prize tiers and odds of winning.
|Numbers Matched||Prize||Odds Of Winning|
|5 + Powerball||Jackpot||1 in 292,201,338|
|5||$1 Million||1 in 11,688,054|
|4 + Powerball||$50,000||1 in 913,129|
|4||$100||1 in 36,525|
|3 + Powerball||$100||1 in 14,494|
|3||$7||1 in 580|
|2 + Powerball||$7||1 in 701|
|1 + Powerball||$4||1 in 92|
|Powerball Only||$4||1 in 38|
Figures in this chart are rounded to the nearest one and are based on a single $2 play.
Glossary of Terms
Advertised Jackpot: The total payment a winner would receive should they choose the annuity option for any given drawing. This number is based on the funds in the prize pool (including all prior rollovers), expected ticket sales for the next drawing, and current market interest rates.
Annuity Payout Option: Payment scheme wherein prizes are awarded starting with 1 immediate payment followed by 29 yearly payments. These payments are graduated – meaning they increase by 5% each year to account for inflation. The total value of all payments is equivalent to 100% of the advertised jackpot.
Lump Sum Option: Payment scheme wherein a one-time payment is immediately awarded to the winner. The total value is approximately 61% of the advertised jackpot. This is also known as the cash option, and is the more popular choice among jackpot winners.
Federal Taxes: Income tax withheld by the US government, including income from lottery prize money. This can range from 24% to 37% of your winnings.
State Taxes: Additional tax withheld, dependent on the state. This varies across states, and can range from 0% to more than 8%.
Tax Liability: The taxes you will have to pay in order to receive your prize. This is computed as federal taxes + state taxes. Please note that in some cases, you might have to pay additional taxes.
Gross Payout: The total prize awarded to a winner before federal and state taxes are applied.
Net Payout: The remaining prize awarded to a winner after federal and state taxes are applied.
Other Lottery Calculators and Tools
Check out our Mega Millions Payout and Tax Calculator to figure out how much taxes you will owe on your lottery winnings and also your payout for both cash and annuity options.
If you haven’t bought your tickets yet and are wondering what the odds of your winning are, you can use our Lottery Odds Calculator or geek out and dive into the math behind Powerball Odds or Mega Million Odds.
Check out Lottery Critic’s very own Powerball Payout and Tax Calculator. We have both annuity and lump sum payouts calculated along with an annual breakdown of taxes by state and more.