Win the lottery? Welcome to the 1%. Now here comes the taxman.
Prize money = taxable income: Lottery winnings are taxed like income, and the IRS taxes the top income bracket 39.6%. The government will withhold 25% of that before the money ever gets to the winner. The rest has to be paid at tax time.
Then there are local taxes. Of the 44 U.S. states that participate in Powerball, all but a handful will take an additional cut of the money, according to lottery statistics site USA Mega.
New Jersey’s rate is among the lowest at 3%, while New York’s is the highest at 8.82%.