Powerball big winner's big tax bill
Thursday, August 16, 2012
The only consolation about not winning the big Powerball prize -- it reached $337 million by the time the numbers were drawn last night -- is that I don't have a ginormous federal tax bill.
That Internal Revenue Service responsibility falls to the one Powerball grand prize winner from Michigan.
If that winner opts for the lump sum payout, which was calculated at $213.3 million when the jackpot was still just $320 million, he or she will end up with around $139 million.
Not a bad take for one night's work, but not $337 or even $320 million.
The reason for the reduction? C'mon, all together now: Taxes.
The winner is now in the 35 percent top federal income tax bracket. Here's the breakout:
|35% federal tax||$74,655,000|
But wait. The tax news gets worse.
Michigan's state income tax rate is a flat 4.35 percent. That's another $9.6 million off the top. Lottery winners in the Great Lakes State will be a bit luckier next year when it drops to 4.25 percent.
But wait again. The winner might face even more bad tax news if he or she lives in Albion, Battle Creek, Big Rapids, Flint, Grayling, Hamtramck, Hudson, Ionia, Jackson, Lansing, Lapeer, Muskegon, Muskegon Heights, Pontiac, Port Huron, Portland, Springfield or Walker.
Each of those cities collects an added 1 percent income tax on residents.
But wa…. Sorry, got carried away. But there really is possibly more bad tax news.
If the winner lives in Detroit, Grand Rapids, Highland Park or Saginaw the local tax rates are even higher. The winner here is the Motor City's bank account with its 2.5 percent tax on the winnings. That comes to $5.3 million.
So if the lucky stars align for the Michigan tax collectors, the Powerball winner could lose almost $15 million to state and local treasuries.
The bottom line after the maximum possible federal and state taxes are paid: $123.7 million.
As I said, not a bad take for one night's work, but not $337 million.
Reducing your gambling taxes: Obviously the Powerball prize amount is so much that unless the grand prize winner is a professional gambler there's not going to be much he or she can do to reduce the jackpot's taxable amount.
But if you win smaller paying bets or lotteries or poker hands, then be sure to add up all our losing bets for the tax year on your Schedule A where as itemized deductions they can help ease the tax bite into your good fortune.
If you played a lot to win a lot (or even just some) you can effectively wipe out your taxable winnings.
Remember, though, that gambling losses that total more than your winnings are worthless. You can't use the excess bad bets to offset any other taxable income.
Still, the option to deduct gambling losses could help some of the holders of the 2,689,630 other Powerball tickets that won nearly $27 million in cash prizes Wednesday night.
On the higher end of the Aug. 15 winnings' scale were eight tickets -- two bought in Indiana and one each in Kansas, Kentucky, New Jersey, New Mexico, Pennsylvania and Virginia -- that won the $1 Million Match 5 prize and the ticket from Nebraska that paid $2 million thanks to the lottery player's purchase of the Power Play option.
What about me? As you've correctly deduced since my headline wasn't "YYYYYAAAAAAAAAAAYYYYYY!", I didn't win a red cent of Powerball money.
I had only one matching number on the three tickets I bought.
That's right. Eighteen numeric options and only one matched any of the six winning numbers.
So I'm keeping my day job, at least until the next big lottery drawing!
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