Why the 3 Powerball winners’ net winnings could differ

Elyssa Kirkham

The chances of winning with a Powerball ticket, which costs $2, are minuscule — just 1 in 175 million. But last week three Americans managed to beat the odds and become winners of the third-highest Powerball jackpot in history, at $564.1 million, as USA Today reported. The three winning Powerball tickets were sold in Texas, Puerto Rico and North Carolina.

The assumption might be that the three winners would simply split the $564.1 million three ways and each get a cool $188 million. In reality, however, the net winnings are as little as $69.5 million. Here’s why.

The $564.1 million reflects the amount that a Powerball winner would take in if he chose to receive his winnings in annuities, or yearly checks, rather than a lump sum. Most lottery winners opt for a lump sum, however, receiving less money to get all of their winnings at once. The difference between payout in annuities and lump sum is pretty stark. While the annuities would total $564.1 million, the lump sum is significantly less, at $381.1 million before taxes, reports USA Today — a difference of $183 million.

Splitting this figure three ways, each winner would receive $127 million. But that’s the gross winnings before accounting for income taxes. Here’s a look at what these Powerball winners will actually net.

When it comes to taxes, the winner from Puerto Rico definitely comes out on top. This U.S. territory pays no federal income tax, so it’s unlikely this winner would have to pay any of the winnings to the IRS, reports CNN Money. According to USAMega.com, Puerto Rico does not charge a local income tax for lottery winnings either, therefore, this lucky winner wins again by getting to keep the full $127 million without paying any taxes on it.

For the winners in Texas and North Carolina, however, federal income tax would still apply to the $127 million, with nearly all of it being taxed at the highest rate of 39.6 percent. This would result in a tax bill of $50.27 million for the winners, which would leave Powerball winners $76.78 million after federal income taxes are taken out.

But state income taxes also need to be paid. Texas doesn’t have a state income tax, so the winner in this state will keep the full $76.78 million after federal income taxes.

But in North Carolina, the income tax is a flat 5.75 percent rate, which on the $127 million would be $7.31 million paid to the state of North Carolina. This puts the North Carolina winner’s take-home winnings at just $69.47 million.

Here’s the final numbers of what each winner nets on the Powerball winnings once all the federal and state income taxes owed are taken out:

Puerto Rico winner: $127 million

Texas winner: $76.78 million

North Carolina winner: $69.47 million

The above numbers do not reflect considerations like standard deductions and other taxes that might change the winners’ tax burdens. Despite the three winners receiving the same initial payout, the Puerto Rico winner will end up with an astounding $57.5 million more than the North Carolina winner.

Elyssa Kirkham writes for GOBankingRates.com, a personal finance news and features site.