We’ve all passed the billboards or heard stories on the local news channels about the growing Powerball jackpot. Though it’s only in the millions now, just a few short months ago that number had climbed to $1.5 billion, making it a rather enticing payday for a majority of people.
Many see winning the jackpot as their way of finally stabilize their finances while others see it as an excuse to retire early. But is winning an enormous Powerball jackpot really all sunshine and rainbows, as the old adage suggests? If you consider how much your winnings will be taxed, the answer might be no.
Federal taxes on lottery withholdings
In the eyes of the IRS, lottery winnings are considered income and therefore must be taxed. According to an explanation sheet on the IRS website, the federal income tax on gambling winnings is 25 percent. But the tax headache doesn’t stop there. If your winnings are at least 300 times greater than the initial wager, you will be required to pay a backup holding, which is an additional 28 percent paid back to the federal government come tax time.
State taxes on lottery withholdings
As an article for the Atlanta Journal-Constitution explains, there are only three states at present time that do not tax lottery winnings. Unfortunately, Georgia is not one of these states. Our state actually has one of the highest tax rates on lottery winnings, which is 6 percent. This means less winnings for you in the end.
While some might see winning the lottery as a good thing, it can have serious tax implications you will need to be aware of, especially during tax time. It’s important to note that this can apply to small gambling winnings as well.