On Wednesday, the winning numbers for a $425 million Powerball jackpot will be drawn in what is now the largest jackpot in Powerball's 10-year history.
As expected, the anticipation about possibly winning this large sum of money is rampant. Not only is the general public excited, but Powerball has increased the chances of winning. Now, each ticket has a one in 175 million chance of winning as opposed to a one in 195 million chance.
Should someone purchase the winning ticket, what happens next? Well, the winner has two options: an annuity or a lump sum. If the winner chooses to be paid by an annuity, he will be paid annually over the course of 29 years (30 payments). The first payment will be given immediately. If the winner chooses a lump sum, the jackpot total drops from $425 million to $278,300,000. This is the profit in cash earned since the last Powerball jackpot winning.
Next, federal taxes are taken out. Powerball withholds 25% automatically, but according to Forbes, the winner is responsible for paying 35% to the federal government. If you chose the annuity option, your $425 million just became $276,250,000. Your lump sum went from $278,300,000 to $180,895,000.
Now is where it gets tricky. Depending on the state the winner lives in (in some cases, the state the ticket was purchased in), the winnings are subjected to state taxes. There are seven states in the country that do not tax lottery winnings - California, New Hampshire, Pennsylvania, Tennessee, Texas, South Dakota, and Washington.
Suppose the winner was a resident of North Carolina, and he also purchased his ticket here. His winnings would be subjected to a 7% state tax. This would put his annuity total at $256,912,518.60 or his lump sum total at $168,232,350. Now remember, while the annuity is a greater amount, it takes 30 years to get all of the money; whereas the lump sum pays upfront.
Even if the winner did choose the lump sum as opposed to the annuity payment, he could buy all 10 of the world's 10 most expensive cars and still have $150 million to spend.
The world's most expensive pair of heels are roughly $26,629.06. The winner could buy six-thousand pairs and still have money to spend.
The point is, no matter what the winner chooses in terms of payment, he will have more than enough money to spend.