What will the extra lucky Georgia winner do with their $478.2 million Powerball Jackpot? The odds of winning the jackpot are 1 in 292.2 million (slightly better than the 1 in 302.6 million odds for winning the Mega Millions jackpot).
Now that the Georgia winner got picked, they’ll have a decision to make—claim the $230.6 million in 30 annual annuity payments or take a one-time, lump-sum cash payment of approximately $478.2 million.
Regardless of the choice made, the Georgia winner will see a significant reduction in their windfall once taxes are settled. Both the federal government and the state will claim their portions, leaving the winner with less than the initial jackpot.
What’s the tax bill for snagging a $478.2 million Powerball jackpot, and what amount will the Georgia winner actually get to enjoy? Read on to find out.
Table of Contents
Federal Taxes on Powerball Winnings
Let’s start with some basics on how the federal government taxes Powerball winnings, which are considered taxable income.
Federal Tax Rates
First, it’s important to understand that federal income tax rates range from 10% to 37%. Thus, the amount of your lottery winnings will determine whether the federal tax on those winnings will be on the lower end or significantly higher.
If we focus on large lottery prizes (like Wednesday’s $478.2 million Powerball jackpot), you can see how easily the highest federal tax rate comes into play. For the 2024 tax year, the top federal tax rate (37%) kicks in if your taxable income exceeds $609,350 and you’re single. If you’re married and file a joint tax return, then the top tax rate applies to taxable income over $731,200. As a result, lottery prizes above the applicable threshold amount will be taxed at the top federal tax rate.
Note, however, that most tax rates are scheduled to rise in 2026 (unless Congress steps in to keep them at the current rate). The highest tax rate is set to increase to 39.6% at that point. This change will affect lottery winners opting for payouts over 30 years, as they’ll face the elevated rate on payments made after 2025.
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State Tax Rates
State tax rates can also impact the total taxes a lottery winner owes. Although not every state levies an income tax, the majority do, and lottery winnings would almost certainly push the winner into the state’s highest tax bracket.
Tax rates differ from one state to another, often ranging from the low single digits to just over 10%, which means winners will need to account for this additional tax burden on their prize money.
The winner lives in Georgia, where the flat income tax rate as of Jan. 1, 2024 is 5.39%.
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Tax Withholding
Bear in mind that for lottery winnings of $5,000 or more, 24% will be automatically deducted and forwarded to the IRS as a withholding measure for tax purposes. This deduction isn’t an extra charge but rather an advance on the total tax you’re liable for upon filing your federal tax return for the year.
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For example, with a $1 million prize, $240,000 ($1 million x 0.24) would be subtracted from you payout immediately (i.e., you would only receive a $760,000 payment). However, when you file your tax return for the year, you would claim a credit for the amount withheld and $240,000 would be subtracted from your overall tax bill.
There might be additional requirements depending on the state or locality you live in as well. The above only applies to federal income tax withholdings.
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Form W-2G
If you win and collect at least $600 from a lottery in 2024, expect a Form W-2G in the mail by January 31, 2025. The form will list your lottery winnings, federal and state taxes withheld, and other information required by the IRS.
The IRS will also receive a copy of the form. So, make sure you report the proper amount when you file your tax return for any year you receive a lottery payment. If you don’t, the IRS will want to know why the amounts on the W-2G and your tax return don’t match … and you really don’t want to draw the IRS’s attention to your return.
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Filing Your Tax Return
When it’s time to file your federal return, you’ll report any lottery winnings as gambling income on Line 8b of Schedule 1 (Form 1040). [The form or line number could change for 2024 tax returns.]
If you have gambling income, that means you can also deduct any gambling losses for the year … but only up to the amount of gambling income reported on your return. You also have to itemize to deduct gambling losses, which means you can’t claim the standard deduction on your return. As a result, depending on your standard deduction amount, you might be better off skipping the gambling loss deduction.
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Federal and State Taxes On the $478M Powerball Jackpot (Oct. 23, 2024)
Now let’s focus on Wednesday’s Powerball drawing for an estimated $478.2 million jackpot. If you’re the lucky Georgia winner, approximately how much spending money would be left after taxes are paid to the federal government and to the state of Georgia? Let’s do some math.
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Lump-Sum Payout
Most lottery winners opt for a lump-sum amount. If the Georgia winner claims the lump-sum, he or she will pay approximately $85.2 million in federal taxes on the lump-sum prize of $230.6 million. About $55.3 million (24%), will be withheld from the payment up front, so the winner will have to pay the rest of the $85.2 million when he or she files a 2024 federal income tax return next year.
For Georgia income taxes, $12.4 million will need to be paid.
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If $85.2 million and $12.4 million are subtracted from the $230.6 million lump-sum payment, that leaves about $132.9 million to spend. While that doesn’t sound as nice as $230.6 million, it’s not too shabby for a $2 investment.
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Annuity Option
If the winner selects the annuity option, he or she will receive an initial annuity payment when the prize is claimed, followed by 29 annual payments that increase by 5% each year (i.e., a total of 30 annual payments). Assuming the winner is single and receives the first payment in 2024 (approximately $7.2 million), the total federal income tax bill for the first two payments (2024 and 2025) will be based on the current 37% tax rate—for a total of about $5.4 million in tax for that period. (That assumes a 2.5% increase in the tax bracket thresholds from 2024 to 2025.)
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Once the rate jumps to 39.6% in 2026 (and assuming it isn’t changed again later), the estimated total federal income tax for the final 28 years (2026 to 2053) comes to about $181.0 million. So, for all 30 years, the winner can expect to pay a grand total of about $186.4 million in federal income taxes and $25.8 million to the state of Georgia.
When you subtract those amounts from the $478.2 million in total payments, the winner will be left with approximately $265.9 million.
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Which Payment Option Is Better?
After seeing the after-tax amounts above, you might be wondering why most people choose to receive their lottery winnings in a lump-sum. After all, isn’t getting $478.2 million better than $230.6 million?
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Not necessarily. The problem with annuity payments is that you have to wait 30 years to get all your money. With the lump-sum option, you get less … but you get it right away. If you invest that money wisely over a 30-year period, you’ll probably end up with far more money in the bank when all is said and done. For example, after 30 years, a $230.6 million investment would turn into approximately $1 billion ($1,030.3 million) with a modest 5% rate of return (compounded monthly).
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Young and the Invested Tip: All tax amounts are estimates based on the listed jackpot amounts. They should not be relied on or considered tax advice. If you do win the lottery, consult with a qualified tax professional right away!
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