Three lottery players have hit the Powerball jackpot and will share a $448 million prize. All three of the winners purchased tickets and picked five numbers between 1 and 59, as well as a Powerball number from 1 to 35. The jackpot, which was expected to be $425 million during the final days, grew by $23 million in the final hours.
At just $2 each, a Powerball ticket competes for a $40 million jackpot. That amount increases by $10 million each time there is a drawing without a winner. With the largest pot in history being $590 million, other lottery games seem measly in comparison. Winning doesn’t come easy, however. The odds of hitting all six of the Powerball winning numbers is more than 175 million to one. Plus, winnings are heavily taxed by the IRS and some states.
Big lottery winnings are generally taxed by the IRS at the top rate, which is currently 39.6% of the jackpot. Winnings are reported to the government on IRS Form W-2G and payment is expected without delay to avoid wage garnishments, bank account levies and other consequences. Even if a winner gives the money to a charity or a family member, there are limitations on how much of a deduction can be taken, and a gift tax is usually imposed.
Strategically planning how to distribute a large lottery jackpot may be tricky and must be done carefully. The advice of a tax attorney who is familiar with the laws surrounding gambling winnings may be beneficial to people who win the lottery. An attorney may be able to help devise a plan for reducing tax liability.
Source: Forbes, “Three Powerball Winners Split $448M, IRS Wins Big Too“, Robert W. Wood, August 08, 2013