Powerball winner will still have to face the fiscal cliff

Donna Melhorn, a waitress at Rosie’s Restaurant in New Oxford, rings up orders for customers while selling lottery tickets in March. The last record Powerball jackpot was earlier this year. For THE DAILY RECORD/SUNDAY NEWS — FILE.

At 10:59 p.m. EST someone will enter the 1 percent.

And their money woes will be over, right?

Maybe their current credit card debt and mortgage payments will no longer be a worry, but they’ll have other money matters to deal with.

The current Powerball has rolled over 16 times to generate the largest Powerball yet, over $500 million. But the politics of the U.S. economy might impact the winner’s decisions. How the fiscal cliff is managed in Washington could change the economic landscape for the winner.

Lottery winners can choose to take their winnings as a lump sum or an annuity. In the case of this Powerball, the annuity would be over $16 million a year, before tax.

Chuck Strutt of the Multi-State Lottery Association told the Guardian that most people opt for the lump sum.

It might seem rash to take all that money in one payment, but with the potential budget changes in Washington, it might make more sense now then ever, said Dominic Rushe, the U.S. business correspondent for the Guardian.

Here’s his point: The winner will instantly jump into a higher tax bracket — at least for 2012 if the payment is taken as a lump — and for up to 29 years if they opt for annuity.

The current laws state that federal taxes will take 25 percent of lump sum winnings. Whatever state the winner lives in also will take a cut. Before state taxes, that brings the winnings down to about $375 million at the most.

If annuity is chosen, the winner will pay income tax on the payments every year — because they are treated as ordinary income. Right now, the top rate is 35 percent. That would bring $16 million a year down to $10.4 million a year, and $312 million over 29 years (and 30 payments, as is the norm).

But who knows what the top rate for income taxes might be next year, let alone the next three decades.

None of these scenarios seem to be putting off ticket buyers. The Multi-State Lottery Association posted that Powerball sales were up 250 percent on Sunday compared to the previous Sunday. Monday sales were up 370 percent from the previous Monday.

If you won the lottery, how would you take your winnings and why?

This entry was posted in credit, Economic Outlook, Stephanie Reighart, Taxes, Uncategorized, Your money and tagged , , , . Bookmark the permalink.

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