Powerball in the Golden State

With all the recent Powerball Lotto excitement the question some potential billionaires are astutely asking is what the tax implications are when they win their fortunes.

While lotto winners reap considerable rewards, the federal government is also a big winner.  With a current top tax bracket of 39.6% the federal government’s take is not insubstantial.  However, where lottery winners err is that only 25% of the jackpot is withheld for taxes on the initial payout.  Many incorrectly assume that the 25% withholding is the extent of the federal income tax liability, but that is only a partial payment.  Another 14.6% may be due when the winner’s income tax return is filed!

Fortunately, though, California is indeed the Golden State of for lotto winners.  Lotto winnings from California lotteries are not taxable in California.  So while winners in other states may face additional state income taxes on their winnings, California winners avoid the additional tax obligation.