Powerball Winnings and Taxes

22nd August 2017

The Powerball drawing, worth $650 million, will be held Wednesday, August 23, 2017. It’s splendid daydreaming about the houses, cars, vacations, and yachts one could possibly buy with the winnings. But what about the taxes? The Ten Key Group has you covered when you find out you’re the newest multimillionaire.

Assuming you’re the sole owner of the winning ticket on Wednesday night, you’ll have two options: 1) you can receive $650 million in the form of an annuity, which will be paid over the next 29 years; or 2) you can select a lump sum option, which will gross $411.7 million. It’s a heated debated on which option is best. With the annuity, the individual would only pay taxes once year when he or she receives the cash. If the winner takes the lump sum, he or she will be paying tax upon the receipt of the lump sum and on any money made each year from investing the winnings. The annuity invests the entire cash value in various securities that are backed by the U.S. government, which is a low rate of return. This is a very safe option, however, you will likely not even be beating inflation with the annuity option. If you take the lump sum option, you can purchase your own private annuity with a potential higher rate of return. Also note that Ohio is one of only six states that allow winners to claim anonymously. Please speak to a trusted financial advisor about these two options.

Now, back to the tax portion of the winnings. The federal government will withhold a 25% cut of the winnings off the top. For the annuity option, this will leave the winner with roughly $16.25 million per year. The lump sum option leaves the winner with $308.8 million. Next, the state will want their cut. Ohio will withhold 4%, which means the annuity will only net $15.38 million and the lump sum option will net you $292.3 million. However, remember, this is only withholding. Next April, you will need to file your tax returns. You’re almost certainly going to be in the highest federal and Ohio tax bracket, which is 39.6% and 5.33%, respectively. Depending on your income, charitable contributions, and other deductions, you’ll likely be writing a check to the government for additional tax due come April 15th. Also, lottery winners are subject to any local tax, which usually ranges from 1% to 2.25%, depending on your municipality.

There are numerous ways to reduce taxes on lottery winnings. Please the Ten Key Group at (234) 334-1966 when you find out you’re the lucky winner on Wednesday night’s Powerball drawing, or feel free to call us if you don’t win and need help with any tax issues. We’ll be happy to help with any situation, big or small.