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Powerball winners include taxmen

By Kay Bell ·
Thursday, November 29, 2012
Posted: 4 pm ET

I had hoped I wouldn't be blogging today.

That's right. I purchased a Powerball ticket and I can guarantee you that although I love all you wonderful Bankrate readers, if I ever cash in a big lottery ticket, it's been nice knowing you.

Alas, I only matched one number.

Two ticket owners, however, got all five lottery numbers (05, 16, 22, 23 and 29) and the Powerball of 6. One winning ticket was purchased in Arizona and the other in Missouri. The owners will split the record $587.5 million jackpot.

But there are other big winners: the Internal Revenue Service and the state tax collectors.

If the winners follow the usual route, they'll take their lottery payout in a lump sum. And the taxes will be taken out off the top.

On the federal level, the almost $294 million each will mean the winners are in the top 35 percent income tax bracket.

No one likes handing over that much money to Uncle Sam, but it could have been worse.

"While the winner will have a big tax bill, the silver lining may be that it will be a lot less than it could be next year if we go over the 'fiscal cliff,' prompting higher income tax rates, as well as when other tax increases go into effect," said Mark Luscombe, principal tax analyst for the tax software and publishing company CCH.

Even if we avert the fiscal cliff via a deal by Congress and the president, that agreement is likely to include some higher taxes for the wealthy.

So the winners can count themselves doubly lucky today.

And they can also be thankful that they live in relatively low-tax-rate states.

Arizona's top income tax rate is 4.54 percent. Missouri residents pay a maximum 6 percent tax on income.

And yes, lottery winnings, just like all types of gambling payouts, count as income.

Of course, if the winners had been trying for most of 2012 to win the lottery or took part in other games of chance without success, they can use those losses to help offset the millions they just won.

I doubt in this case it will make any difference at all, but if you're going to have to pay taxes, you at least should know every way you can legally reduce them.

And I'm going to hold onto my losing ticket -- OK, two losing tickets, since I bought one for the previous Powerball drawing, too -- in case I get a little lottery luck before Dec. 31.

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December 06, 2012 at 7:09 am

obviously like your web-site but you have to test the spelling on quite a few of your posts. Several of them are rife with spelling issues and I in finding it very troublesome to tell the truth nevertheless I will surely come back again.

Joe Insero
November 30, 2012 at 6:30 pm

Winning 294 million dollars and have to pay about 90 million in taxs, so what you still have about 200 million left. that's not bad for a 2 dollar bet.

Robert Canny
November 30, 2012 at 5:48 pm

I don't believe any state or federal taxes should be collected on
any state gambling. The purpose of state gambling is to collect revenue(taxes) Does it make any sense to double dip and grab more? The federal government does nothing and hops on board to grab their pound of flesh.

Douglas Freeland
November 30, 2012 at 4:37 pm

Sorry, about my spelling plus grammer. See what happens when you just post stuff without research or reading it back.

Douglas Freeland
November 30, 2012 at 4:31 pm

I thought this would fall under a short trem capitol gain that would be taxed at 28% not 35% you might won't to talk to tax advisor before you post.