You Will Owe the IRS a Ton of Money This April
You will owe the IRS $129,688,000 on April 15, which is a large sum of money. This is in addition to any state taxes you may owe.
The lucky winner of the $2.04 billion Powerball jackpot can expect to see a major windfall, after taxes are taken into account. Depending on the state in which the winner resides, and how they choose to receive their winnings, taxes can eat up a significant portion of the jackpot. For example, if the winner chooses to receive their winnings as a lump sum payment, they could be facing a federal tax bill of nearly 40%. However, if the winner elects to receive their winnings in annual payments spread out over several years, the tax bill would be significantly lower. Regardless of the amount of taxes owed, the winner of the Powerball jackpot is sure to receive a life-changing sum of money.
I think that most people would prefer to take the lump sum payment of $997.6 million, rather than the 30 annual payments of $68 million. While the total amount is lower, it is a much larger sum of money up front, which can be used to invest, pay off debts, or for any number of other purposes. Of course, the taxes on such a large sum of money would be significant, but I think that many people would be willing to pay them in order to have the money now, rather than waiting for 30 years.
If you win the lottery, don't expect to keep all of the money. The government will take a chunk out of your winnings in the form of taxes. According to the IRS, 24% of your winnings will be withheld for federal income taxes. So, if you win $2.04 billion, you'll actually only receive $997.6 million in cash. The other $239.4 million will go straight to the IRS. And that's not all. In April of 2023, you'll owe even more in taxes, since federal income tax rates go up to 37%. If you're in the top 37% tax bracket, an additional 13% of your winnings will be due, which comes out to $129.7 million. So, while winning the lottery may seem like a dream come true, remember that the government will take a huge cut out of your winnings.
It's no surprise that winners of the lottery often have trouble paying their taxes the following year. With a 37% tax rate on their winnings, many winners end up owing a large sum of money come April 15th. For those who are lucky enough to win the lottery, it's important to plan ahead and set some money aside to cover the taxes. By doing so, winners can avoid any surprises or financial difficulties come tax time.
The winner of the Powerball lottery will take home a life-changing amount of money after taxes, but depending on where they live, they may have to pay even more in state taxes. Thankfully, California is one of the few states that does not tax lottery winnings, meaning the winner will get to keep all of their hard-earned money. However, if the winner lives in a state that does tax lottery winnings, they could be facing a hefty tax bill.
With taxes taking a bite out of most things, some people try to do last-minute tax planning with gifts, assignments, and other moves. But this can actually backfire and end up costing you more in taxes. It's best to plan ahead and be aware of the tax implications of your actions before taking them.
It seems that winning the lottery can sometimes do more harm than good. In some cases, winners have found themselves embroiled in lawsuits over the proceeds of their winnings. In one case, a 20-year-old oral agreement to split lottery winnings was upheld. Some suits over lottery winnings are with co-workers and (former) friends, while others are with family members—or with the IRS. In Dickerson v. Commissioner, an Alabama Waffle House waitress won a $10 million lottery jackpot on a ticket given to her by a customer. The trouble started when she tried to benefit her family and to spread the wealth. While it is certainly admirable to want to help out loved ones, it seems that in this case, it may have been better for the waitress to have kept her winnings to herself.
This woman made a big mistake by not consulting a tax advisor before claiming her lottery winnings. As a result, she ended up owing gift taxes on the money she transferred to a family company. She fought the tax bill in court, but ultimately lost. Had she planned ahead, she could have avoided this whole situation.