Millions of Americans are hoping to become an instant billionaire on Wednesday night, as the drawing for the all-time record $1.5 billion Powerball jackpot will be held at around 10 PM CT Wednesday evening.
That said, even if you beat the 292 million to 1 odds and end up as the lucky winner, you will be be facing a several hundred million dollar tax bill. In fact, according to an analysis by USAMega.com, the federal tax burden alone will top $230 million (assuming a single winner that choose to take the $930 million lump sum option). If you live in a state that imposes income tax on lottery winnings, you will owe another 50 to 100 million in taxes.
Math experts say given the ongoing frenzy of buying, there is around a 90% chance that at least one ticket will match all six numbers (five regular numbers and the Powerball) and win the Powerball jackpot. There is also a greater than one in four chance that more than one ticket will match all six numbers.
More on Wednesday’s $1,5 billion Powerball jackpot
Of note, New York state has the highest tax rate on lottery prizes at 8.82%. There is an extra withholding of 3.786% if you live in New York City and 1.323% if you live in Yonkers.
If you live in California, Delaware, Florida, New Hampshire, Pennsylvania, Puerto Rico (not shown), South Dakota, Tennessee, Texas, Washington and Wyoming, according to USAMega.com. Washington D.C., not visible on the map above, charges an 8.5 percent state tax on lottery winnings.
Also keep in mind that Arizona and Maryland tax non-residents who buy winning tickets in their states differently than residents.
Unlike most lotto contests, Powerball tickets cost $2 (or $3 if you want Power Play).
When you do the math, it turns out that Powerball players have spent around $2.6 billion since the last jackpot was claimed in late November.
You can also win smaller amounts even if you don’t hit the big jackpot. If you match the Powerball, but no other numbers, you win $4. If you hit three or more regular numbers (with or without the Powerball), you will win a prize of $7, $100, $50,000 or $1 million.
Meanwhile, Jones Trading adds:
POWERBALL!– For those of you thinking about buying 292mln Powerball tickets (for every combination)
· The lump-sum jackpot payment is estimated to be about $868 million. That alone would give you a handsome $284 million profit if you bought every ticket. And since there are $92 million in lower-tier prizes, you’d win all of those too.
· You can deduct the value of your gambling losses up to the amount of your winnings. So all but two bucks of what you spent on tickets would be tax-deductible. Effectively that deduction means you’d wipe out any federal taxes owed on the first $584 million of your winnings
· You have to buy Powerball tickets in person. That’s a lot of transactions – If you were able to buy one ticket every second, it would still take you more than nine years to buy every combination
· And of course, the Strategy backfires if 1 other person buys that winning # (you’d have just a 22% chance of buying the only winning ticket and keeping that jackpot all to yourself)