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FOX BUSINESS - Many Americans are hoping they will be the lucky recipient of the $550 million Powerball prize - though the actual amount a winner would take home will be much less than the headline jackpot number.
An individual with a winning ticket is faced with two options - either take the money in the form of a lump sum or an annuity payment - which would be paid out over the course of about 30 years.
In the case of the annuity payment - the less common option - a winner would receive one immediate payment and 29 consecutive ones. The amount paid increases by 5 percent each year, according to K. Eli Akhavan, partner and chair of the Private Client and Wealth Preservation Group at CKR Law.
However, if the prize is taken in the form of a lump sum, it would be valued at about $335 million. About $80.4 million will be immediately withheld in federal taxes, Akhavan noted.
The IRS will also likely tax the winnings at the highest federal income bracket, which now sits at 37 percent for individuals with incomes in excess of $500,000. You would owe any difference left over between that tax rate (37 percent) and the federal withholding rate (24 percent) when you file your tax return at the end of the year - or 13 percent.
Depending on where the winner lives, the jackpot could also be subject to state taxes, with amounts that range from 0 to 8.82 percent.
Prior to the implementation of state taxes, the lump sum jackpot would be worth an estimated $211 million.
Winnings are not subject to the 3.8 percent net investment income tax.
If the winner plans on giving money away, under current law he or she is allowed to give up to $15,000 to as many people as desired without tax consequences.
Akhavan advised any lottery winners to retain an attorney to help with asset protection.
"I frequently advise my clients on the use of sophisticated trusts and other techniques to ensure maximum protection," he said. "A financial advisor should be selected to help prudently invest these assets. We here all too often about lotto winners whose funds are mismanaged and they end up squandering their fortune."
The growing Powerball prize the tenth largest lottery jackpot in U.S. history. The largest single-winner prize was the $1.5 billion Mega Millions jackpot claimed by an anonymous individual in South Carolina earlier this month. The take-home pay for that winner - who opted for the lump sum - was about $490.6 million.
The next drawing will occur on Wednesday. The odds of winning are less than one in 292 million.