How much would an Arkansas Powerball winner really earn once taxes are taken out?

When a huge Powerball jackpot makes the news, the number sounds unreal. Billions of dollars.

A life that changes overnight. But the truth is much simpler. The big number you see is not what the winner actually takes home.

For the Dec. 24 Powerball drawing, the advertised jackpot was about $1.817 billion. That sounds massive.

But once payout choices and taxes are added, the final amount becomes much smaller.

Why the jackpot number is confusing

The jackpot number is shown as a total paid over 30 years. Winners are given two options.

One is a lump-sum payment, where they take a smaller amount right away. The other is an annuity, where the money is paid out slowly over 30 years.

Most winners choose the lump sum because they want the money upfront. But this choice comes with a big tax cut.

If the winner chooses the lump sum

For a jackpot of this size, the lump-sum option is estimated at about $835 million before taxes. That is already less than half of the headline number.

Federal taxes take the largest share. Lottery winnings are first hit with a 24% federal tax.

But for such a large prize, the final tax bill usually goes up to the top rate, around 37%. This means roughly $300 million would go to federal taxes.

Arkansas also taxes lottery winnings as regular income. The state’s top tax rate is 3.9%. This would take away another $32.6 million.

After both federal and state taxes, an Arkansas winner who chooses the cash option would likely take home around $502 million.

That is still an incredible amount of money, but far from $1.8 billion.

If the winner chooses the annuity

The annuity option pays the full $1.817 billion over 30 years. Payments start smaller and slowly increase each year. Every yearly payment is taxed when it is received.

Federal taxes still apply, and Arkansas state taxes are also taken out each year. Over 30 years, the total taxes could add up to about $742.9 million.

After taxes, the winner would receive about $1.074 billion in total across three decades. On average, that comes to around $35.8 million per year after taxes.

Which option is better?

The annuity gives more money overall, but it comes slowly and depends on future tax rules. The lump sum gives less money, but it is paid all at once.

Either way, the winner of this Powerball jackpot would still become extremely wealthy.