Powerball’s real tax bite is mind-blowing

Posted: March 29, 2013

How much did a Passaic, N.J., man really win when he hit Saturday's Powerball jackpot?

A lot less than the $338 million on the ceremonial check presented to him Tuesday at state lottery headquarters.

Dominican immigrant Pedro Quezada, a bodega owner, wasn't the only one to hit the jackpot. So did Uncle Sam and the State of New Jersey.

So much so that Quezada is likely to be shocked to find out that despite vast sums already withheld from his winnings, he'll still face an enormous tax bill, as pointed out by a recent analysis by Forbes.

OK, nobody's going to sorry for the guy, but watch how the money disappears.

$338.3 million was the advertised jackpot, but that's the annuity amount, payable in 30 yearly installments.

Almost everybody takes the cash instead. Quezada, who claimed the prize Tuesday, said he would, too.

That's worth $211 million, the second biggest cash prize ever for a single ticket.

See "Biggest Jackpots in U.S. Lottery History."

Of course, as is widely reported, a 25 percent chunk always gets withheld for Uncle Sam.

So kiss about $52.75 million goodbye.

That leaves $158.25 million.

Which isn't close to what he gets to keep.

New Jersey withholds 3 percent. Kiss another $6.3 million goodbye.

Thus, $152 million is roughly what Quezada can put in the bank.

Not that he'll get to keep it.

And we're not counting the $29,000 he allegedly owes for child support.

Since 2009, the Garden State has taxed lottery wins worth $10,000 or more as regular income, points out Todd Northrop of LotteryPost.com. The current top rate is 8.97 percent - one of the highest in the nation.

So that's another $12.6 million on top of the withheld $6.3 million.

We're down to $139.35 million.

But wait. The federal rate isn't 25 percent. The top income-tax rate is a hefty 39.6 percent, up from 35 percent last year.

The one-year hike alone contributes a bite of about $9 million.

Subtract 39.6 percent of what's left after the state-tax deduction, and, after taxes, Quezada should have about $116 million.

That's $95 million for Uncle Sam and Cousin Chris.

Although $59 million gets siphoned off upfront, that leaves quite a tax bill.

$36 million.

Easy come, easy go.

After 25 percent is withheld, Quezada will have to fork over nearly another 25 percent of what's left.

The total tax bite: About 45 percent.

Way more than 25 percent.

Giving money to charity would help, Forbes points out, but if he plans to give millions away to worthy causes, he'd be smart to do it this year, so he gets the largest tax deduction.


Contact staff writer Peter Mucha at 215-854-4342 or pmucha@phillynews.com.

comments powered by Disqus
|
|
|
|
|