Powerball Taxes: Here’s How Much the Winner Pays

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Powerball Taxes

Winning the lottery can be life-changing, especially when you’re playing for something as big as the Powerball jackpot. Of course, your winnings aren’t as large as advertised—you’ve got to pay Uncle Sam his fair share. 

Powerball taxes can eat up a significant portion of your winnings. You’ll pay more than a third in federal taxes, but your state may also claim a piece of the prize. 

Most recently, the Powerball winner in Michigan won the $842.4 million jackpot (cash value of $425.2 million for the lump-sum payout). According to current federal tax guidelines, they’ll owe roughly $157.2 million in federal and state taxes for the lump sum. This means they’ll end up with $250 million when all is said and done.

Below, we’ll walk you through how taxes on lottery winnings actually work—and how much you’ll take home when all is said and done.

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Powerball Winnings After Taxes

Imagine for a moment you’ve won the Powerball jackpot. (Hey, congrats!) You’re about to come into a lot of money, but how much will you actually have left after taxes? We’ll break it down in more detail below, but here’s the gist:

First, you’ll pay federal taxes on lottery winnings. This includes a 24% federal withholding tax, plus additional federal income taxes at tax season (millions from the lottery bump the winner into the 37% bracket). You’ll also pay state taxes on lottery winnings if you live in one of the states that levy them. Depending on where you live, you’ll pay anywhere from 3% to 11% in state and local taxes. 

Let’s take a closer look at how Powerball taxes shake down.

Federal Taxes on Lottery Winnings

For winnings of more than $5,000, the IRS skims 24% off the top of your earnings right off the bat via a federal withholding tax, much like what you might have deducted from a paycheck.

For large earnings, like when you win millions of dollars from the Powerball lottery, you’ll have to pay more when you file your income tax return. And big-ticket winners are almost always pushed into the highest bracket.

For 2024, the highest federal tax bracket is 37%. That’s for pre-tax incomes of $609,350 or more ($731,200 for married couples). You’ll owe 37% on any earnings over that amount, plus a set amount of $183,647.25 ($196,669.50 for married couples).

State Taxes on Lottery Winnings

We’re not done yet; state and local taxes may also apply to lottery winnings. If you live in a state or city with income taxes on lottery winnings, you’ll have to hand over an additional 3% to 11%. 

The table below shows the five states with the highest income taxes, applicable to lottery winnings.

StateLottery Tax Rate
HawaiiUp to 11%
New YorkUp to 10.9%
New JerseyUp to 10.75%
OregonUp to 9.9%
MinnesotaUp to 9.85%
States With the Highest Tax Rates on Lottery Winnings

Note, however, that Hawaii is one of five states that don’t have state lotteries. The full list includes Alabama, Alaska, Hawaii, Nevada, and Utah. If you live in one of those states and want to play the lottery, you’ll have to purchase a ticket in another state.

Hawaii will, of course, still be happy to tax its residents’ Powerball winnings up to 11% if they win.

States That Don’t Tax Lottery Winnings

The recent Powerball winner wasn’t lucky enough to live in one of the only eight states that don’t tax lottery winnings. Here’s the full list of lottery-friendly states:

  • California
  • Florida
  • New Hampshire
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

There’s one major caveat to this: If you live in one state but purchase your winning lottery ticket in another, you’ll be subject to taxes in the state where you purchased the ticket. Therefore, if you live in one of these eight states, you’d do well to avoid purchasing tickets from another state.

If you do live in a state with lottery taxes and buy your winning ticket from another state that levies taxes on winnings, you could owe money to both states.

Read more: The Most Tax-Friendly States for Retirees

Taxes on the Most Recent Powerball Lottery

The most recent Powerball winner hailed from Michigan. Given the tax rates in Michigan, here’s how much they’ll give up to the government in federal and state taxes on lottery winnings, assuming they take the lump-sum cash prize of $425.2 million.

  • Federal taxes: The IRS will claim 24% of their winnings ($102,048,000) before they ever see a dime; the winner will pay the rest of what they owe in federal taxes when they file. Assuming this winner is single, makes no other income in 2023, and has no deductions or credits, the total amount they’ll owe on the winnings is $157.2 million: $174,238.25 on the first $578,125 of their winnings and then $157.1 million (37% of the rest).
  • State taxes: Michigan also withholds 4.25% of the total winnings for state tax, which amounts to another $18 million deduction.

If they opted for annual installments, the winner’s yearly payments will total about $28 million, or $17.7 million if the 37% federal marginal rate is applied.

What About Mega Millions Winnings After Taxes?

The Powerball lottery is top of mind for many Americans because someone just won the jackpot in July 2023. But it wasn’t that long ago that a winner in New Jersey claimed the top prize (a record-breaking one at that) in the Mega Millions jackpot lottery as well.

Calculating how much taxes you pay on Mega Millions winnings works just like Powerball winnings. You’ve got to pay federal taxes—and then maybe state taxes (and local taxes, too).

Here’s how it would shake out for the recent Mega Millions winners:

  • Federal taxes: The IRS will claim 24% of their winnings ($129,000,000) before they ever see a dime; the winner will pay the rest of what they owe in federal taxes when they file. Assuming this winner is single, makes no other income in 2024, and has no deductions or credits, the total amount they’ll owe on the winnings is slightly over $198.8 million: $174,238.25 on the first $609,350 of their winnings and then roughly $198.6 million (37% of the rest).
  • State taxes: New Jersey also adds a state income tax of 6.625%. This winner will subtract another $33.5 million from their winnings.

Lump-Sum Payout vs. Annuity Lottery Payouts

Generally speaking, if you choose the annuity payout option for your lottery winnings, you’ll receive a lot more money over time—the payout is bigger if you play the waiting game. But you’ll also have to pay the appropriate taxes on the payout each and every year because the winnings count toward your annual income.

The recent Powerball winnings have been too large for it to make a difference, but if the lottery payout is small enough, spreading the winnings out over 30 years could actually take you down to a lower tax bracket each year and reduce how much you pay.

And keep in mind, the IRS reviews its tax brackets each year and updates when necessary Should the IRS increase its highest tax bracket sometime in the future, you’d owe more per dollar won.

Plus, if you move to a state with a higher income tax rate, you’ll suddenly start paying more in taxes each year on your annuities.

In short, you’ll pocket a heck of a lot more money when you choose annual payouts vs. a lump-sum payment. However, some prefer to receive their winnings all at once so they can make large investments right away and avoid complicated tax filings year after year.

If you can count yourself lucky enough to be discussing the best way to claim your billion-dollar payout, you’re probably in good shape either way. Still, it’s a good idea to meet with a trusted financial advisor to make the right call and talk about how to reduce your tax burden. You’ll also want to meet with an estate planning attorney to make a plan for your financial windfall.

Read more: The Top Lottery Jackpots of All Time

FAQs About Taxes on Lottery Winnings

What is the payout for a $1 billion dollar Powerball?

If you win the $1 billion Powerball, you can choose the annuity option and get an immediate payout and then 29 annual payouts, increasing by 5% each year. At the end of 30 years, you’ll have made the full $1 billion. Alternatively, you can choose a lump-sum payment right away and receive an estimated $516.8 million. After federal and state taxes, you’d be left with just under $300 million after taxes (assuming an average state income tax of 5%), if you took the lump-sum payment.

Who is exempt from paying lottery taxes?

Anyone who wins the lottery in the United States must pay federal income taxes on it. The amount owed depends on the amount won. Certain states, however, may not levy any additional income taxes on your winnings.

If I gift some of my winnings to family and friends, will I pay a gift tax?

Whether you owe a gift tax on lottery winnings given to friends and family depends on how much you share. The annual gift tax exclusion in 2023 is $17,000 to each recipient, but any money given in excess of that goes toward your lifetime gift tax exclusion; in 2023, that amount is $12.92 million. Only if your lifetime gifts exceed that amount (hey, you’re very generous), then you’ll have to start paying a gift tax.

Should I take a lump sum or annuity lottery payments?

Taking annuity lottery payments is often the better choice (though to each their own!). With annual payments, you have guaranteed income for decades—and there’s no risk of squandering your lottery winnings all at once, which can and does happen to some winners who take a lump sum. While it’s possible you may die before you get all the money when going the annuity route, you can pass on those annuities to an heir.

Taking the lump-sum payout does have its perks, though. In theory, if you invest the money aggressively, you could earn more off the smaller lump sum than you’d make over a lifetime of annuity payments. This, of course, requires sound investing and discipline.

What are the odds of winning the lottery?

You’ve got a 1 in 292.2 million chance of winning the Powerball jackpot and a 1 in 302.6 million chance of taking home the Mega Millions jackpot. Your odds of winning the lottery depend on what you’re playing. The odds on a scratch-off ticket are much lower, especially if you buy more than one ticket, but still highly improbable.

Bottom Line

You’re more likely to do a whole lot of unlikely things—get hit by a meteorite, be wrongfully convicted of a crime, even become president—than win the lottery. But that doesn’t stop a whole bunch of people from trying.

And if you win? You’ll rake in major cash even after the government takes a sizable portion. A financial advisor or estate planner can help you decide what to do with your lucky winnings. Or, for the rest of us who never win big, help us make responsible investments so we can leave our heirs with a little something.

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