What's the Powerball After Taxes in Minnesota?

Let’s say after years of playing the Powerball lottery you finally won a big jackpot of $1 billion. First of all, congratulations! Now that the celebrating is out of the way we can get down to business. How much of that money you actually end up with depends on both state and federal taxes, as well as whether you take your prize as an annuity or a cash lump sum. You don’t want to end up losing most of your winnings like this because you weren’t prepared.

To answer the question what’s the Powerball after taxes in Minnesota and make sure you know how to maximize your prize, read this simple guide with everything you need to know.

How are Powerball taxes calculated?

To know what your Powerball taxes will be you need to know how Powerball taxes are calculated.

There are no federal tax obligations for prizes under $600, while prizes between $600.01 and $5,000 must be reported on your federal income tax form. For those prizes you will also be given a W-2G form to complete along with your tax returns.

For prizes over $5,000, the Minnesota Lottery withholds 7.25% in state income taxes. American residents then pay 24% in federal income taxes while non-residents pay 30%. For a jackpot win specifically, the federal income tax rate shoots all the way up to 37%.

If you are lucky enough to become one of Minnesota's big lottery winners, it’s recommended to consult with a professional tax advisor to avoid any tax surprises.

Powerball Annuity vs Cash Option

Before you can find out what will be left of your $1 billion Powerball payout after taxes you have to decide whether to take your winnings as an annuity or cash lump sum.

The advertised jackpot amount represents the jackpot fund plus 29 years of interest from investments. If you choose to take your Powerball winnings as an annuity, the jackpot will be paid out to you in 30 payments over 29 years, with an annual interest rate of 5%. If you instead choose the cash option you’ll get your winnings in one lump sum. The cash option equals less money because it doesn’t benefit from the 29 years of interest that add up to the advertised jackpot.

All that may make it look like the annuity is the better deal, but there are also advantages to taking the cash option. Some people prefer the annuity so that they’re not hit with a massive tax bill, but getting the tax bill out of the way in one go can prevent future complications like your tax rates going up or taxes making the annuity harder to pass down as an inheritance.

What are your Powerball winnings after taxes?

But what does all that mean for you? Let’s take your $1 billion jackpot and see what happens to it after taxes. The numbers won’t be exact, but they'll give you a pretty good idea of what are your Powerball winnings after taxes.

If you chose to take your winnings as an annuity, 37% would go towards federal income tax. That’s $370 million! Then another 7.25%, or $72.5 million, would go towards state income taxes. All that would leave you with $557.5 million. Still a lot of money, but just over half of what you started with.

If you instead took your winnings as a cash lump sum, they would be worth around 33% less in this example. From your $1 billion jackpot you could expect to only take home around $370 million.

But it shouldn’t be any surprise that such a big jackpot would come with such a big tax bill. An example that might be more relevant for most Minnesota lottery players is winning a prize worth $10,000. After taxes, that prize would be worth a bit under $7,000. Not bad at all!

Make the most out of your jackpot

You may not be thinking about this now, but if you did win $1 billion in the Powerball lottery, a lot of businesses, charities, and even friends and family would come asking for some of that money.

One more way to hold on to as much of your winnings as possible is to consider winning the lottery anonymously.

Enjoy your Powerball payout after taxes

You can’t make those pesky taxes disappear completely, and they do pay for a lot of good causes in Minnesota, but just knowing the facts and what your options are will help you make the most of your Powerball payout after taxes.

Once you’ve decided how you want get the most out of your lottery winnings, the only thing left is to purchase your lottery tickets!!