Powerball jackpot

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If I live in a state that taxes prizes, but bought my ticket in a state with no tax on prizes, do I still need to pay state tax?

Yes, you do.  Think of lottery prizes as regular earned income from a job.  Just because you may work in a different state, that doesn’t permit you to get away with not paying state income tax in your state of residence.  The lottery works the same way.

Whether it’s income from a job or income from gambling, the state where the money is won will tax the prize first at their out-of-state tax rate (assuming the state taxes lottery winnings).  If your state of residence has the same or lower tax rate, then you won’t owe anything else.  But if your state has a higher rate, you will get a credit for what you paid in the other state, and pay the difference to your state.

If the other state has no tax, you just pay the entire tax bill to your state.

The net result is that you end up paying whichever tax rate is higher between your state of residence and the state where you purchased the ticket.  Of course, the tax law is quite complex and it’s possible that some condition or arrangement exists between the two states and a good tax attorney and/or accountant could discover a tax-saving loophole.  That’s why we always recommend that major prize winners do not make any major decisions before first hiring a good legal and financial team.

One other option to consider, depending on how much in taxes you’re looking to save: the residency requirements as they relate to prize claims, state taxes, and income reporting.  Since you aren’t responsible for paying taxes until you claim the prize, perhaps there is time to establish residency in the state where you purchased the ticket before the prize claim period expires.  However, that is something you would definitely need to explore with an attorney before taking any action to assess the feasibility.  You would also need to decide if it would be worth the risk of that important little piece of paper not getting lost, damaged, or destroyed in the time you spend arranging everything.

If I should win the jackpot, do I have the option of remaining anonymous as far as the public and the media are concerned?

In most states, lottery winner information is public domain, therefore it is public information.  Publicized information normally includes the jackpot winner’s name, city, county, game in which they won, date won, and the amount of the prize.

After you win the jackpot, we recommend seeking the professional guidance of a good lawyer and accountant to see if there are ways of maintaining as much privacy as possible — before contacting the lottery and/or claiming the prize, and possibly even before letting friends or family know.  You may be tempted to yell to the rooftops in glee about your newfound fortune, but you will probably end up regretting that decision once the excitement of the win calms down, and you are left with a continuous stream of lawsuits and requests for money from those who want a piece of your win.

What is the Power Play?

The Power Play is an option that is currently offered in all states that sell Powerball tickets except California.  For an extra $1.00 per ticket you can increase your non-jackpot prize winnings by 2, 3, 4, 5, or 10 times.  (The 10 times Power Play is only available when the jackpot is $150 million or less.)  The Power Play number is randomly drawn from a pool of multipliers that includes two 5X, three 4X, 13 3X, and 24 2X, plus one 10X when the jackpot is $150 million or less.

The Power Play is not available in California because the state law that requires all lottery prizes to be paid out on a pari-mutuel basis is not compatible with the fixed nature of Power Play payouts.

The Power Play multiplier number is chosen at random just before the Powerball winning numbers are drawn.

A player must choose the Power Play option when they buy their Powerball ticket, and then the ticket must match one of the 9 Ways to Win (except the jackpot) before the multiplier takes effect.  Power Play costs an extra $1 per play.  See How to Play Powerball for more information.

The state lotteries and MUSL (the organization that runs Powerball) are all very firm in their assertion that playing the lottery in any manner over the Internet is illegal.  We are not lawyers and can’t provide legal advice, but we are not so sure about their position.  Their absolute certainty that it is illegal may have more to do with not wanting to lose control of the player interaction, and less to do with a firm legal footing.

When we assess the legality, we look at what has actually happened in court cases.  There have been people in the past who purchased a lottery ticket from an Internet Web site, subsequently won the jackpot, and the lottery attempted to block them from receiving the jackpot.  In each case, the winners took the lottery to court and won.  They received their jackpot as if they walked into a store and purchased a ticket.

You must keep in mind that any type of Internet-based lottery service is not risk-free.  From a legal standpoint, the services are dealing in loopholes in the current law, and the US Congress has taken steps to make those loopholes tighter, particularly in trying to prevent banks and credit cards from allowing Internet payments for lottery services.  But there is a much bigger threat when you use an Internet lottery service: getting ripped off.

By not making a purchase in a store, you may be doing something worse than throwing your money away: you may be helping to keep a scam operation running.  Stay away from anything referring to a «syndicate».  We are not aware of any site using that terminology that is not a scam.  Also beware of sites that state «Insured by ___» at the bottom.  It is like saying «We don’t really buy lottery tickets, but trust us, you’ll get paid if you win.»  Have you ever heard of an insurance company paying out a $200 million Powerball jackpot?  We haven’t.

We do allow some advertising on USA Mega for lottery services.  We recommend that USA residents stay away from such services, and make your purchases in a store.  The ads are directed at non-USA residents, who may not have the online lottery restrictions that exist in the USA.

Why is the cash option always a different percentage of the annuity from draw to draw?

If you’re calculating what percentage the cash value is of the annuity, then you’re looking at it backwards.  The cash value is the starting point, as it is a direct percentage of ticket sales.  Then the annuity amount is calculated from that, based on prevailing interest rates.  Since the interest rates are constantly changing, the annuity amount calculated on one day will be a different number than if it is calculated the next day.  So when a drawing occurs and the lottery has to estimate the next annuity jackpot, they first estimate the number of tickets that will be sold for the next drawing, which determines what the cash value estimate is (because a fixed percentage of each ticket sold goes toward prizes).  Then they finally calculate what the annuity will be based on the current interest rates.

Are lottery prizes taxable?

Lottery winnings of $600.01 and over are subject to Federal Withholding tax.  For winnings of $600.01, up to and including $5,000, you will be issued a W-2G form to report your winnings on your federal income tax form.  For winnings of $5,000.01 and over, your state’s Department of Revenue removes the 24% federal withholding before you receive your winnings check (or, if it is an annuity, from each winnings check).  You then receive a W-2G form with each check to submit with your 1040 form to show that the 24% federal withholding already has been paid.  In addition to federal tax, your state will make additional withholdings for taxes, and most states will deduct other money that you may owe to the state, such as back taxes, child support, loan payments, etc.  In addition, like the federal tax withholding, the state tax withholding at the time
of prize payout may not be the total state tax owed at the end of the year.  You must consult your state division of taxation for more information about the total state tax requirements for lottery winners.

The state tax withholdings are as follows:

Arizona 4.8% state withholding (Arizona residents), 6% state withholding (non-Arizona residents)
Arkansas 6.6% state withholding
California No state tax on lottery prizes
Colorado 4% initial withholding at time of payout, 4.63% total tax due
Connecticut 6.99% state withholding
Delaware 0% initial withholding at time of payout, 6.6% total tax due
Florida No state tax on lottery prizes
Georgia 5.75% state withholding
Idaho 6.925% state withholding
Illinois 4.95% state withholding
Indiana 3.23% state withholding
Iowa 5% initial withholding at time of payout, 8.53% total tax due
Kansas 5% initial withholding at time of payout, 5.7% total tax due
Kentucky 5% state withholding
Louisiana 5% initial withholding at time of payout, 6% total tax due
Maine 5% initial withholding at time of payout, 7.15% total tax due
Maryland 8.95% state withholding (Maryland residents), 8% state withholding (non-Maryland residents)
Massachusetts 5% state withholding
Michigan 4.25% state withholding
Minnesota 7.25% initial withholding at time of payout, 9.85% total tax due
Mississippi 5% state withholding
Missouri 4% initial withholding at time of payout, 5.4% total tax due
Montana 6.9% state withholding
Nebraska 5% initial withholding at time of payout, 6.84% total tax due
New Hampshire No state tax on lottery prizes
New Jersey 8% initial withholding at time of payout, 10.75% total tax due
New Mexico 6% state withholding
New York 8.82% state withholding.  Note: New York imposes additional withholding if you live in one of the following jurisdictions: New York City (3.876%) and Yonkers (1.477%).
North Carolina 5.25% state withholding
North Dakota 2.9% state withholding
Ohio 4.797% state withholding
Oklahoma 5% state withholding
Oregon 8% initial withholding at time of payout, 9.9% total tax due
Pennsylvania 3.07% state withholding
Puerto Rico No state tax on lottery prizes
Rhode Island 5.99% state withholding
South Carolina 7% state withholding
South Dakota No state tax on lottery prizes
Tennessee No state tax on lottery prizes
Texas No state tax on lottery prizes
U.S. Virgin Islands This state/jurisdiction has not responded to our requests for this information
Vermont 6% initial withholding at time of payout, 8.75% total tax due
Virginia 4% initial withholding at time of payout, 5.75% total tax due
Washington No state tax on lottery prizes
Washington, D.C. 8.95% state withholding
West Virginia 6.5% state withholding
Wisconsin 7.65% state withholding
Wyoming No state tax on lottery prizes
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