Powerball reporting

OK, this is minor in the grand scheme of things, but it irritates me that the media seems clueless as to some really basic concepts of income and taxation when it comes to this big Powerball jackpot winner.

On CNN and in papers across the country (thanks to the Associated Press story), the winner”s net take is being described as follows:

The winning ticket holder has the option of taking the money in one lump sum or installments over 30 years. The cash option is $177.3 million, or $124.1 million after taxes. On the installment plan, the first payment would be $6,507,986 after tax.

A little quick math shows that – according to the media – the winner will get 70% of the cash option payment “after taxes”. But wait. The federal tax rate is 35% on income over $336,500, and I”m pretty sure $177.3 million is more than $336,500. And the IRS treats lottery winnings as gambling income, which is taxed as regular income.

So what gives? It took me about 30 seconds on Google to learn that gambling winnings are subject to 25% withholding from the IRS and that Nebraska withholds 5% of lottery winnings for state income taxes. Withholding, of course, is how the government ensures some taxes are paid even if an individual would choose not to file a return and claim the income.

In reality, the winner will get about $107 million after taxes based on almost all of the lottery income being taxed at the 35% federal rate and the 4% state tax rate in Colorado (where the winner is apparently from).

But the media, as usual, took the lazy route. It would have been most correct to say the winner will receive a check for $124.1 million and will net about $107 million after taxes, but even saying they would “get $124.1 million after taxes are withheld” would have been closer to the truth.

That”s asking too much of the media, I guess.

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One Response to “Powerball reporting”

  1. Alvis Jenkins says:

    No state lotteries are required by law to wihhold federal income tax. Why? Because the income generated from the lottery is not “federal income” The tax they unlawfully withhold is claimed to be a tax on federal income. The federal government does not run the state lotteries. In subtitle “A” of Title 26, the subtitle on income taxes, only provides one section for the liability of the income tax and it is on a withholding agent who collects the tax from nonresident aliens and foreign corporations. The IRS does a lot of things that are unlawful and the government allows it to happen.

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