Which option should choose by the Powerball
lottery winner a lump sum payment or annual
prizes?
The Powerball jackpot is now an estimated $900 million after no one claimed the top prize on Saturday’s drawing.
If a winner is announced on Monday, the winner won the third-largest Powerball prize ever.
According to lottery officials, the odds of hitting the jackpot are 1 in 302 million. Unfortunately, the winner will also face some very hefty taxes if they choose to claim the prize all at once.
The cash option on the third largest jackpot is $465.1 million, according to Powerball officials.
In 2018, according to a news release from the N.C. Education Lottery, federal tax withholding for winnings over $5,000 went from 25% to 24%, which means $111.6 million will be automatically withheld from the winner.
If there is no reduction in your income after winning, an additional $60 million will be due to the IRS.
If the winner is from North Carolina, another 5.25%, or $24.4 million, will be deducted for state taxes, leaving the winner with about $269 million.
Although federal and state taxes can significantly reduce lottery winnings, there are some advantages to taking a lump sum payment.
Lump sum payments can also help winners avoid long-term income tax implications.
However, those who choose to receive their winnings in annuity payments, or payments that are split and released over a fixed period of time, can earn more in the long run.
In 2014, Vinh Nguyen, a California nail technician, was the sole winner of the $228.4 million Powerball jackpot. He chose to receive the money in annuity payments over 30 years, where he would receive the entire amount instead of a lump sum, giving him $134 million.
Annuities can also prevent winners from spending all their money after receiving a lump sum, but because they are fixed payments, winners cannot adjust the payment terms if a financial emergency arises.
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