How Is the Powerball Jackpot Calculated?

By Herb Kirchhoff
JACKPOT!! You're in the money!

Powerball is a multistate lotto game, administered by the Iowa-based Multi-State Lottery Association on behalf of participating states. It offers a giant jackpot that changes with each drawing, plus smaller fixed cash prizes. Powerball tickets are sold in 42 states and the District of Columbia. Drawings are held in Orlando, Florida.

Jackpot Grows

Powerball jackpots start at $20 million. If there’s no winner, the jackpot rolls over to the next drawing and continues to grow with each succeeding drawing until there’s a winner. The jackpot must grow by a minimum $5 million per drawing until someone wins, but it usually grows by more. There’s no upper limit to the jackpot size, and Powerball jackpots have exceeded $350 million. Odds of winning the Powerball jackpot with a single ticket in any one drawing are 1:195 million.

Calculating Value

The Powerball jackpot value advertised for each drawing is the total annuity value that will be paid to the winner in 30 installments over 29 years, before taxes. Powerball calculates the jackpot annuity value for each drawing by counting off into a jackpot cash pool 32.5 percent of the expected Powerball ticket sales in the current drawing cycle, adding jackpot cash pools rolled over from preceding winless drawing cycles and then multiplying that total cash amount by current market interest rates on the long-term investment securities that will finance the annuity. Powerball and its participating states assume all financial risks and guarantee that the advertised annuity value will be paid in full.

Lump-sum Option

Powerball jackpot winners have the option of taking the present cash value of the annuity in an up-front lump-sum payment. Those opting for the lump sum typically receive about 50 percent of the annuity value advertised for that drawing, before taxes.

Decision Deadline

Most states give jackpot winners 60 days to choose whether to take the annuity or the lump sum, but some states allow only 30 days, and a few require players to make the choice when they buy their tickets. Regardless of whether the winner is paid in one installment or 30, Powerball must withhold from each installment federal and state income taxes as required by law.

Unclaimed Jackpots

If a jackpot-winning Powerball ticket is never cashed in, the funds in the jackpot cash pool for that drawing go back to the participating states in proportion to their contribution to the pool. The deadline for cashing in a winning Powerball ticket varies from state to state but generally falls between 90 days and one year from the drawing date. Returned Powerball funds are dealt with according to each state’s lottery rules for unclaimed prizes.

About the Author

Herb Kirchhoff has more than three decades of hands-on experience as an avid garden hobbyist and home handyman. Since retiring from the news business in 2008, Kirchhoff takes care of a 12-acre rural Michigan lakefront property and applies his experience to his vegetable and flower gardens and home repair and renovation projects.