How much tax would you pay if you won the lottery in Kentucky? We break it down here
Wednesday’s Powerball jackpot — now at an estimated $1.73 billion — is the second largest grand prize in the game’s history and in U.S. lottery history, according to the Kentucky Lottery.
With a cash value of $756.6 million, Kentucky players may be wondering just how much of that they’d actually get to keep after both Uncle Sam and the state take their cut in the form of taxes.
Here’s what you can expect if you check your ticket Wednesday and find you’ve beaten the 1-in-292.2 million odds to win the Powerball jackpot.
How much will a Powerball winner in Kentucky get after taxes?
Kentucky law dictates that the proceeds from lottery prizes shall be subject to the state’s income tax rate.
At the beginning of 2023, that rate was reduced from 5% to 4.5%, and it could drop another half a percent if the state hits certain triggers and the legislature approves the decrease.
If you live out of state but purchase your winning ticket in Kentucky, you are still subject to the state income tax on lottery prizes.
What does the federal government do with lottery winnings?
The IRS automatically takes a 24% share of your winnings as tax money, Kentucky Lottery spokesperson Jennifer Cunningham confirmed to the Herald-Leader Tuesday.
If you decide to take the lump sum payment — which for Wednesday’s drawing is $756.6 million — you will pay all the taxes at once. If you take the annuity and opt to receive annual payouts instead, you’ll pay the tax over time.
Should you take the lump sum or the annuity?
Ultimately, it’s a personal decision and one that can be complex.
According to SmartAsset.com, taking the lump sum allows you to make use of your new wealth right away. You can choose to start a business or invest the money into low-risk stocks and see your purchasing power grow with inflation.
On the other hand, taking all that money at once could make you vulnerable to bad actors, and many lottery winners who take the lump sum end up spending all their money in a few years. Taking the annuity option protects your wealth from yourself and anyone else who might want to take it from you.
What are all the ways you can win the Powerball?
According to the game’s official website, there are nine different ways you can win prizes of various sizes. They all involve matching a certain number of white balls and/or the red Powerball in different combinations.
Powerball tickets are $2 per play, and you can pay $1 extra to multiply your winnings by a certain number — but this does not apply to the jackpot.
Kentuckians can purchase tickets online at kylottery.com, through the Kentucky Lottery app or at any participating lottery retailer.
If you or someone you know has a problem gambling, help is available at 1-800-522-4700.
Do you have a question about the lottery in Kentucky for our service journalism team? We’d like to hear from you. Fill out our Know Your Kentucky form or email ask@herald-leader.com.