The Powerball jackpot now stands at a whopping $550 million — but if somebody wins the king-sized lottery tonight, they’ll be facing their own fiscal cliff in the form of a monster tax bill.
That’s because they have the choice of taking payment in one lump sum or an annuity of 30 payments over 29 years — and what they decide could mean a savings, or loss, of millions in taxes.
The dilemma is whether to pay federal and state taxes on one lump sum now, or with the annuity option, face higher taxes in the coming years with the so-called Bush tax cuts about to expire.
On a $550 million lump sum payment, the winner would instantly have to pay 25 percent in federal taxes as well as any state taxes, which vary from state to state.
Chuck Strutt, executive director of the Multi-State Lottery Association, told London’s Guardian newspaper that while states like New Hampshire and Florida don’t take a cut, New Jersey claims a hefty 10.8 percent. Other states charge around five percent.
So after taxes, that lump sum drops down to about $375 million.
And while that seems like a horrendous take by Uncle Sam, the alternative could mean even more taxes.
The Guardian estimates that this year's top rate of 35 percent could save a winner as much as $16 million if the top rate of income tax is increased to nearly 40 percent next year.
The annuity pays $16.66 million a year, or $1.38 per month — before any taxes are taken out.
Meanwhile, Powerball fever has been sweeping the nation all week with long lines at lottery dealers and more than 100,000 tickets being sold every minute. The heavy sales pushed the jackpot up from $500 million on Wednesday afternoon.
The tension will end at 11 p.m., Eastern Standard Time, when a winner is picked at lottery headquarters in Tallahassee, Fla.
Lottery officials say there’s a 60 percent chance of somebody winning the entire jackpot tonight. If there is no winner, the jackpot could rise hundreds of millions more. There has been no winner since October 6.
The $550 million jackpot is the second highest in United States lottery history. The top prize of $656 million was a Mega Millions jackpot last March.
But all this talk of winning the Powerball jackpot may be somewhat futile. That’s because the odds of winning it are just one in 175,223,510.
And experts say it makes no difference whether your strategy is to pick your own numbers or let the lottery computer do it for you.
“It doesn’t matter. Your odds of winning are actually the same no matter who picks it,’’ Scott Norris, math professor at Southern Methodist University in Dallas, told ABC News.
He said the only real advantage that can help is to buy additional tickets because, “your odds increase directly proportional to the number of tickets you buy. So if you buy 100, your odds are 1 in 7 million, but still astronomically small.’’
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