Powerball frenzy has officially taken hold, inspiring even those “I’ll never win,” folks to buy a ticket(s), and some for the first time. You’ll see long lines of optimistic players betting against the odds (which just so happen to be about one in 292 million) in hopes of winning big.
The advertised $1.5 billion – and counting – jackpot, however, isn’t exactly an accurate picture of what the winner will take home. Most players know your total take-home largely depends on whether you choose a lump-sum or opt for annual payments. But, one mustn’t forget about taxes, both federal and state… and maybe local taxes, too.
There are a total of 44 states that participate in Powerball, plus Washington, D.C., Puerto Rico and the U.S. Virgin Islands. The states that don’t, but will tax your lottery winnings anyway, are Nevada, Utah, Mississippi, Alabama, and Hawaii, according to USAMega.
For most potential Powerball winners, your state very much intends to take a large cut of the lottery winnings. New York, for example, has a steep tax rate in comparison with other states - 8.82 percent. And if you live in New York City, don’t forget about the additional local tax of 3.876 percent it will take, too.
Eleven jurisdictions, however, will leave your winnings be. If you’re lucky enough to live in a state that either has no income tax or chooses not to include lottery winnings in taxable income, you’ll be able to hold on to more of the money. Those states include Alaska, California, Delaware, Florida, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington and Wyoming.
But if you’re already packing your bags - not so fast. Under California law, for example, lottery winnings are considered taxable income if they originate from another state’s lottery.
Also, despite Indiana’s relatively low tax rate of 3.4 percent on lottery winnings, it should be noted that as of Jan. 1, the state now declares all of a taxpayer’s lottery winnings (including those from another state’s lottery), fully taxable, no longer providing any available deduction from income.
Winning the lottery may be sweet but isn't a piece of cake as some may think, and the amount you’ll take home depends largely on where you live. There are many other factors at play, too, that will affect your total winnings, such as federal tax, deductions, gift tax, charitable contributions...and family members you never knew you had.
Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Should lottery winnings be taxed at all?
For more information about state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library.
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