Who will be the extra lucky winner of the $600 million Powerball Jackpot? The odds of winning the jackpot are 1 in 292.2 million (slightly better than the odds of winning the Mega Millions with 1 in 302.6 million).
Once the winner gets picked, they'll have a decision to make—claim the $600 million in 30 annual annuity payments or take a one-time, lump-sum cash payment of approximately $293.4 million.
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 Saturday’s $600 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.
For lotto winnings over $5,000, 24% will be automatically deducted and sent to the IRS for tax withholding. This deduction is an advance on your annual federal tax return, not an extra charge.