Powerball jackpot hits $725 million. If you win, here’s the tax bill

The Powerball jackpot topped an estimated $725 million ahead of Wednesday’s drawing, becoming the seventh-largest prize in the game’s history, according to the lottery.

But those winnings drop substantially after taxes.

If you score the winning ticket, there are two choices for the windfall: an estimated $366.2 million lump sum or an annuitized prize that pays out yearly and is worth $725 million.

“One thing that’s unique about the lottery is that you can accept it over a 30-year period with annuity payments,” said certified financial planner John Chichester Jr., founder and CEO of Chichester Financial Group in Phoenix. “That offers a lot more flexibility in how you pay the taxes.”

Rather than a larger, upfront tax bill, you can take the annuity payment and invest the money in a tax-efficient manner, said Chichester, who is also a certified public accountant.

The odds of winning the Powerball jackpot are 1 in about 292 million.

Before winners see a penny of the multimillion-dollar jackpot, there’s a mandatory 24% federal withholding that goes to the IRS. The withholding applies to winnings of more than $5,000.

If you choose the $366.2 million cash option, the 24% withholding automatically reduces your cut about $88 million. However, many taxpayers wrongly assume they’re off the hook after that 24%, Chichester said.

“That 24% comes off the top, but you’re still responsible for the other 13% at some point,” he said.

Here’s why: Millions in lottery winnings will push you into the top federal income tax bracket. For 2023, the 37% rate applies to taxable income of $578,126 or more for single filers and $693,751 or higher for married couples filing together. You calculate taxable income by subtracting the greater of the standard or…