How Much Money Will the Powerball Winner Get After Taxes?

The sixth-largest lottery reward in U.S. history ($1.08 billion, or roughly half of the largest lottery reward, $2.04 billion, dished out last November) has a winner. Though the winner's identity is still a mystery, the winning ticket was sold from a downtown Los Angeles minimart and will make the lucky ticket holder a multimillionaire.

But not a billionaire. No, even though the lottery prize is over a billion dollars, the winner still has to pay taxes on their earnings. In fact, no matter how they choose to receive their prize -- either as a lump sum, which yields a pretax total of $558.1 million, or as an annuity with 30 annual payments of roughly $36 million each -- the ticket holder will still face a hefty, hefty tax bill. Let's take a look at how much the Powerball winner gets after taxes.

Powerball winners will face a tax rate of 37%

First, before any taxes are paid, the federal government will withhold 24% of the winner's earnings. This is not unlike when the IRS withholds money from your paychecks in order to pay your annual federal tax bill.

That means, if the Powerball winner decides to take the lump sum, the IRS would withhold 24% of the $558.1 million, or about $133.9 million, leaving the winner with roughly $424.1 million.

If the winner decided to take the annuity, the annualized federal withholding would be roughly $8.836 million for 30 years, according to the lottery website USAmega.com. In practice, your withholding would fluctuate each year, due to the fact that your annuity payments start low and increase 5% each year to adjust for inflation. But, taken together, your payments would annualize to about that much.

But this is just the winner's tax withholding, not their actual tax bill. The Powerball winner will still have to pay taxes at their federal tax rate, which will very likely be the top-tier rate, currently 37%. That means, if the winner is single, they would pay 37% on any income above $578,126 and if they're married it would be income above $693,751. All in all, at a tax rate of 37%, the Powerball winner (who takes the lump sum) would pay about $206 million in taxes and be left with roughly $351 million.

The winner who takes the annuity would net double the lump sum

According to USAmega.com, the winner who takes the annuity would net $22,712,845 per year. After 30 payments, their total net winnings would amount to over $681 million, which is almost double what the lump sum would yield.

Of course, most winners will take the lump sum. Thirty years is a long time to collect your earnings, and besides -- you could potentially invest your money in assets that have a higher rate of return, like stocks or S&P 500 index funds. But for those with a longer time horizon -- and perhaps a solid plan for their personal finances -- the annuity would put more lottery winnings in your pocket.

At the end of the day, the lottery winner will pay hundreds of millions of dollars in taxes, reducing their prize to either $351 million or $681 million. Fortunately, the ticket was bought in California, which doesn't have state taxes on lottery winnings, but had it been bought in another state, like Maryland, which taxes winnings at 8.95%, the sum would be reduced further. Regardless, it's still an enormous sum of money and will completely change the life of whoever won.