$1.5 Billion Powerball Pot Just $522 Million After Taxes

If you win the Powerball in Michigan, donâ€™t be surprised to discover some "partners" sharing the pot with you: state and federal tax collectors. Hereâ€™s how much they will scoop off the top in taxes, as calculated by Joe Henchman, vice president of legal and state projects at the Tax Foundation.

The winner will have 25 percent withheld automatically by law for federal taxes and the state withholding tax. In Michigan, the state income tax rate is 4.25 percent.

When the winner files their taxes next year, they would have to pay again â€” the difference between what was withheld and what they owe.

The current jackpot is $1.5 billion (and not split between multiple winners), with the lump-sum option paying out $930 million. So off the bat, the federal government will take $232 million through withholding, and Michigan will take $40 million.

The winner would get a check for $658 million, but come tax time next year, will owe another $136 million to Washington. That leaves $522 million in true take-home money after all the taxes are paid, or about 34.8 percent of the headline-grabbing $1.5 billion.

Also, Henchman notes that if anyone wants to share their lottery winnings with friends or family, anything over $14,000 in one year or $5.45 million over a lifetime is taxed at the gift tax rate of 40 percent.

With the outlay of $1

Nope. The powerball is a $2 ticket. But that's not the best part...

I've heard it claimed that lotteries are taxes on the poor, but that's not really the case. It's a tax on the mathematically challenged.

The best example of this was from a few years ago, when the organized crime syndicate behind it wanted to help jack up the grand prizes. They figured out that the best way for this was fewer big payouts, and new marketing.

Their solution was to add additional numbers to the set of possible number, effectively reducing the odds of winning the jackpot by about 40%.

At the same time, they rolled out a marketing campaign, stating that the additional numbers from which to choose "gives you more ways to win!"

I read somewhere that the odds of being struck by lightning WHILE being attacked by a shark are greater than winning the jackpot.

Still you can't win if you don't pay, even if the odds of winning are fractionally better than 0%. So I'll admit, I also pay my share of the "Stupid Tax," buying a couple of tickets when the jackpot hits about $300M or more.

But it's funny how much more honest "The Mob" was when they ran lotteries, better known as "The Numbers." Back then, when you won, you actually collected what they promised. Funny how much more honest "the Mob" was than the REAL "organized crime syndicate," also known as the government.

Mark

You can't guarantee that the state lottery commission or the insurance company that issues the annuity will ever fulfill their promise. Only a fool would trust a state entity or an insurance company on a promised future payment that large.

DING, DING, DING!

You hit the nail on the head:

Lottery winners in Illinois get IOUs for prizes over $600

Mark

Oops! The last time I played it, personally, it was still $1. My wife usually plays it for us.

Still, $2 against even a minimum $12 million jackpot is a pretty good invest ment...if you win.

But, like I tell my wife, if we had back the money she’s spent on tickets, we wouldn’t need the jackpot! ;)

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