How a Canadian Powerball winner could pocket more money than an American

Zaida Cobangbang, of Union City, Calif., shows her Powerball tickets shortly after buying them Saturday, Jan. 9, 2016, in San Lorenzo, Calif. (AP / Marcio Jose Sanchez)

With Wednesday's jackpot rocketing to a record US$1.5 billion, United States residents are caught up in Powerball fever.

But, an expert says, some Canadian players may have a few million extra reasons to get excited.

Non-U.S. citizens are legally allowed to purchase Powerball tickets, and they may actually be able to pocket more money than those living in the U.S., Kentucky lottery expert and financial consultant Don McNay said on CTV's Canada AM on Monday.

It all boils down to how lottery winnings are taxed.

The United States' federal government treats a jackpot as income, and can withhold 25 per cent of winnings as income tax for citizens with correct taxpayer ID numbers.

For those without ID numbers, that amount can go up to 28 per cent.

In Canada, on the other hand, "tax authorities do not consider lottery winnings to be taxable for Canadian income tax purposes," the Ontario Lottery and Gaming corporation says.

"Because your tax laws are better in this situation than the United States, you're probably better off," McNay said.

However, there are some complicated catches.

Under U.S. law, the Internal Revenue Service can "generally" withhold 30 per cent of "gambling winnings paid to a foreign person," so Canadian winners aren't totally off the hook for federal taxes.

And, depending on the state, where you purchase your lottery tickets, you may also be required to pay a state income tax on their winnings.

The website USA Mega, which tracks the Mega Millions and Powerball lotteries, breaks down how much each state charges in taxes.

New York, for example, has the highest state lottery tax at 8.82 per cent. This tax applies to both residents and non-residents who bought tickets in the state.

Meanwhile, in Washington, there's no state tax on lottery prizes.

The payout also differs depending on whether the winner wants to accept the prize in one lump sum, or would prefer the money in yearly instalments.

The advertised $1.4 billion jackpot actually refers to the value of the prize in annual payments, which are adjusted for inflation.

If the winner wants a one-time lump sum, the jackpot drops to $868 million before taxes, USA Mega says.

As a result, the site says that means the total payout after taxes in New York, for example, could end up as low as $574,442,400 – or less than half the advertised amount.

Of course, all the calculations will ultimately prove irrelevant in the end.

Regardless of which side of the border they call home, Powerball players have only a one-in-292.9 million chance of winning the jackpot, McNay said on Monday.

For those willing to risk the odds, the next Powerball draw is on Wednesday.

Tickets cost two U.S. dollars, and must be purchased from a licensed retailer in one of the 44 states, or two U.S. territories where Powerball is played, or in Washington D.C.