Powerball jackpot hits $1.8 billion. Here’s the tax bill if you win Here's what the winner can expect to pay in taxes
The Powerball jackpot soared to an estimated $1.8 billion on Friday
The Powerball jackpot has soared to an estimated $1.8 billion ahead of Saturday night's drawing.
It's the second-largest prize in U.S. lottery history, only behind the record $2.04 billion winnings from November 2022, Powerball said on Friday. However, that windfall could shrink significantly after taxes.
There are two pretax options if you win: a lump sum, or one immediate payout followed by 29 yearly payments that increase by 5% annually. The lump sum is estimated at $826.4 million, while the annuity is worth an estimated $1.80 billion.
More from Personal Finance:
Trump raised the SALT deduction limit to $40,000 for 2025 — how to maximize it
Active managers struggled 'mightily' to beat index funds amid volatility: Morningstar
Senator introduces new bill to eliminate taxes on Social Security benefits
The next Powerball drawing happens live on Saturday at 10:59 p.m. ET. The chances of winning the grand prize are 1 in about 292 million.
Roughly $198.3 million goes straight to the IRS
The Powerball jackpot winner can expect a large upfront federal tax withholding. The IRS requires a mandatory 24% withholding for prizes that exceed $5,000.
If you choose the $826.4 million cash option, the 24% federal tax withholding automatically reduces your winnings by $198.3 million.
But the windfall pushes you into the 37% tax bracket, and your bill will likely be higher, certified financial planner John Chichester Jr., founder and CEO of Chichester Financial Group in Phoenix previously told CNBC.
How to calculate your federal tax brackets
The next Powerball jackpot winner easily lands in the 37% federal income tax bracket, regardless of whether they choose the lump sum or yearly payments.
For 2025, the 37% rate applies to individuals with taxable income above $626,350 and married couples filing jointly earning $751,600 or more for 2025.
You calculate taxable income by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
But the 37% rate doesn't apply to all of your taxable income. For 2025, single filers pay $188,769.75 plus 37% of the amount over $626,350. Meanwhile, joint filers pay $202,154.50 plus 37% of the amount over $751,600.
The jackpot winner's remaining tax bill after the 24% federal withholding depends on several factors, but could easily represent millions more. President Donald Trump's "big beautiful bill" raised the standard deduction, among other breaks, which could reduce taxable income for many filers in 2025.
You may also owe state taxes, depending on where you live and where you purchased the ticket. Some states have no income tax or don't tax lottery winnings, but others have top-income state tax brackets exceeding 10%.
Powerball isn't the only chance to win big. The jackpot for Friday night's Mega Millions drawing now stands at an estimated $336 million. The chance of hitting the jackpot in that game is roughly 1 in 290.4 million.
This story originally appeared on: CNBC - Author:Kate Dore, CFP®, EA
