Powerball Jackpot Swells to $786 Million After 40 Drawings Without a Winner

Q: Why might choosing the massive cash option trigger a hidden tax trap for an unprepared lottery winner?

Choosing the cash option can create a major tax shortfall because the withholding at payout is usually far lower than the winner’s real tax bill. Powerball typically withholds about 24% upfront on large prizes, but a jackpot-sized lump sum is treated as ordinary income and will usually push the winner into the top federal bracket, where much of that income is effectively taxed at 37%. That gap can amount to millions of dollars due the next time the winner files a return. On a $341.6 million cash option, the lottery’s automatic withholding would cover only part of the federal liability, and state income taxes may be owed as well depending on where the winner lives. In high-tax states, the combined bite can approach roughly 40% to 50% of the prize. The trap is that many winners focus on the amount wired to them and assume taxes are mostly handled. They may start spending, gifting, or making big purchases before setting aside enough for the IRS and state tax agencies. But the winnings are reported on Form W-2G, and any unpaid balance can trigger tax bills, estimated-tax penalties, interest, or offsets for existing debts. That is why advisers urge winners to treat a lump-sum jackpot as a tax event before anything else. The annuity can ease that pressure because it spreads taxable income over decades instead of forcing nearly the entire tax hit into one year.

3 articles · Updated · WABC-TV · Aug 4

$786 million is up for grabs in Wednesday night’s Powerball drawing, making the prize the game’s ninth-largest ever.
40 straight drawings without a jackpot winner have driven the pot higher since May 2, when tickets in Florida and Texas split a $20 million prize.
$341.6 million is the estimated cash option before taxes, while the annuity pays out over 30 graduated payments across 29 years.
1 in 292.2 million are the odds of hitting the jackpot, as an economist urged any winner to stay anonymous where allowed, hire tax advisers quickly and avoid early big spending.