Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
By Vicky Graham
The odds of winning the ever-growing Aug. 16 Powerball lottery, currently at $430 million, are roughly one in 292 million. Yet the probability of paying taxes on the jackpot is 100 percent.
The exact amount depends on where the lucky winner resides and whether he or she takes the prize as a lump sum or in installments. But the federal government will take 25 percent off the top—or $68.4 million of the total $237.4 million taxable under the lump-sum options allowed in some states. As for the annuity option, which spreads a total of 30 payments over the course of 29 years, the federal government will take $3.58 million, according to USAMega.com.
Since 2003, only 4 winners out of almost 200 have chosen the annuity option, while the majority opt for the one-time lump sum payment. With annuity payments, jackpot winners are paid the full advertised prize amount, before taxes, as the state lottery purchases U.S. Government Treasury Securities to fund the winnings via interest earned and maturity. With a lump sum payment, the state pays the winner a one-time amount that would have been invested in the annuity alternative.
The annuity option increases the total earnings, in the long run, but the lump sum payout may be the safest choice due to potential tax fluctuations and overall investment advantages, Jared Walczak, senior policy analyst at the Tax Foundation, told Bloomberg BNA Aug. 15. “Not only is there inherent uncertainty about what the tax rates will be in the future, but the difference is likely to be dwarfed by the advantages to be gained by the prudent investment of a lump sum payment,” he said in an email.
Nine states, including California and Delaware, don’t tax lottery winnings, while six—Alabama, Alaska, Hawaii, Mississippi, Nevada and Utah—don’t offer lotteries at all. Residents of those states may buy tickets elsewhere, but they may still face taxes on their winnings.
Residents of New York and Maryland pay the most state taxes on lottery winnings, 8.82 percent and 8.75 percent, respectively. New York City residents pay an additional local tax of 3.88 percent.
The lowest taxes are paid by residents of North Dakota, where winnings are taxed at a 2.9 percent rate, and Pennsylvania, at 3.07 percent.
The next Powerball drawing is scheduled for Aug. 16 at 10:59 p.m.
To contact the reporter on this story: Vicky Graham in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jennifer McLoughlin at email@example.com
Copyright © 2017 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)