A lone winning ticket for the record $2.04 billion Powerball lottery jackpot was sold in Altadena, California, lottery officials said Tuesday, making the lucky ticket holder the winner of the largest lottery prize ever.
The ticket was sold at a Joe’s Service Center, the California Lottery said on Twitter. Results posted to Powerball.com similarly said there was one winner who matched all six numbers in California – the odds of which were 1 in 292.2 million, according to the Multi-State Lottery Association.
The winner can choose between two options: receive the full price as an annuity or get a lump sum, which would be less than the advertised $2.04 billion. The latter is usually the most popular option among lottery winners, and in this case, the cash prize amount would be a little less than half of the total pot — about $997.6 million.
Fortunately, California does not tax lottery winnings. So, if the winner is a resident of the state, he or she would only be subject to federal taxes, starting with the IRS withholding 24 percent of the lottery payment.
While the IRS will scrape 24% — or $239.4 million — off the top for federal tax withholding, California does not tax lottery winnings, according to the state’s lottery winner’s handbook. So if the winning ticket holder lives in the Golden State, no state or local taxes on the windfall would be due.
In total, however, the winner will pay about $370 million in federal taxes since all winnings will be counted as taxable income come tax filing time.
At the federal level, more than the initial $239.4 million withheld would likely be due at tax time because the top federal rate is 37%.
Unless the winner was able to reduce their taxable income — i.e., by making large charitable donations — another 13%, or $129.7 million, would be due to the IRS. That would be $369.1 million in all going to federal taxes, leaving the winner with $628.5 million.
If the winner was Minnesotan
What if the winner lived in a high-tax state like Minnesota? They would pay nearly $100 million more in taxes.
Minnesota requires that the state withholds 7.25 percent on lottery winnings above $5,000. Of the $997.6 million lump sum payments, the state would withhold about $75 million.
However, come tax time, the whole $977.6 million would be counted as taxable income and thereby be subject to Minnesota’s progressive tax system. Calculated using the state’s system, the total tax owed on $997.6 million would be a little over $98 million under each type of filling.
Table: Taxes paid under each bracket (by type of filer) for $997.6 million lump sum payment
Head of Household
Adding together federal and state taxes, the winner would be left with a little over half a billion dollars — or $531 million — thanks to a hefty tax bill.