Taxman will also be big winner in $2 billion US lottery

NEW YORK • The winner, if any, of the record US$1.4 billion (S$2.02 billion) Powerball lottery jackpot in the United States today will not be the only one smiling all the way to the bank.

The US taxman, at state and federal levels, will be taking a huge chunk of the winnings, according to reports yesterday.

If the winner opts to take the prize in one lump sum, he or she gets only US$868 million, a cut of 38 per cent, reported CNBC.

The estimated prize comes up to US$1.4 billion only if the winner opts to take the winnings in 30 payments over 29 years. The winner then has to pay a series of taxes.

Lottery winnings are taxed by the Internal Revenue Service as ordinary income, subject to the highest federal tax rate of 39.6 per cent.

Of this tax rate, the US government automatically withholds 25 per cent of such large prizes if the winner is a citizen or resident with a social security number. The remaining 14.6 per cent in federal taxes has to be paid by April 2017.

Next come the local taxes. Of the 44 US states which participate in the Powerball, almost all will take a cut of the earnings, with New Jersey's rate being the lowest at 3 per cent, while New York's is the highest at 8.82 per cent, reported CNN. New Yorkers will also have to pay county and city taxes.

Astronomers at the Space Science Institute estimate that one is more likely to be killed by an asteroid - a one-in-700,000 chance - than win the grand prize, which carries a one-in-292.2 million chance with every US$2 ticket.

Still, people are rushing to buy tickets. "People are buying hundreds at a time. We have sold more than US$1,000 worth of Powerball today, and it is still early," Mr Amin Haffar, owner of a Citgo service station in Chicago, told Reuters yesterday .

A version of this article appeared in the print edition of The Straits Times on January 13, 2016, with the headline 'Taxman will also be big winner in $2 billion US lottery'. Print Edition | Subscribe