Nawth Chucka and I just watched the Price is Right, where a lady just won something like $1.08M in combined prizes. I’ve often heard that Uncle $ugardaddy takes his cut right as soon as you leave the studio door, with the state’s tax commissioner following right behind him.
As I understood it, Uncle $am gives you a tax bill that day. How long until you actually recieve your winnings from the game show, and does the IRS at least give you a grace period?
I mean, they won’t withhold your winnings until you pay the taxes first, would ‘they’?
Tripler
“You mean I can’t get my six foot check until I fork over $40k for it’s taxes?”
The examples and discussion present only the taxability of the winnings, not the timing of the tax payments or whether the show or the feds would withhold prizes until taxes were paid. The OP presumes the taxability and is wondering about whether IRS comes after you at the studio door for it.
I do not know how game show winnings are typically handled, but here’s how it works for more mundane types of income. If you have income where taxes are not withheld, such as making a large gain in selling stock, and you pay no taxes until you file your return on April 15, you will be assessed a penalty and interest for having too large a tax payment. The amount you owe when you file can be only up to a percentage (I don’t remember how big, but not big) of the total tax. The textbook method to mitigate this is to make quarterly tax payments. The IRS does not tell you in advance that you must make these payments or how much they should be, although if you have this problem once they will send you a package of four envelopes and vouchers so you may make atonement the following year.
Because large game show and gambling winnings have more visibility and are rarer than stock trades, the IRS may take a little effort to chase down the winners and remind them of their obligations, I don’t know. I have not heard of a precedent for the IRS itself becoming directly involved before the tax return declaring the winnings has even been filed. They normally come in after a return has been filed if there is a routine audit or suspicion of fraud.
From my original Jeopardy! appearance-
Taped: first week of March
Aired: right around July 1
Received check: Sept 1
Took delivery of the Chevy Tahoe that I won for being 5 time champion: Sept 10, 2001, coincidentally enough [traded down to a Blazer & some cash]
California withheld 6% from the check I got from Jeopardy!, but I got almost all of that refunded when I filed, IIRC.
Made a quarterly payment to the IRS of about 30% of my total cash & prize winnings in December.
And of course Jeopardy! also sent me & the IRS a Form 1099-Misc.
What is cool! A friend of mine had a similar experience when he won a charity drawing. His prize was an SUV. He did not really want the vehicle, nor did he want to come up with the cash for taxes. The dealer offered a small sports car, with the difference in price covering taxes/tags/more dealer profit.
So it appears (and granted, from one Doper’s experience) that while Uncle $am slaps you with a bill almost immediately, they do have a timeline set up to at least allow you to recieve your winnings to make payment on them.
Yes no?
Tripler
Tomorrow’s post? Your lucky lotto numbers from the patented Crystal Ball ® from TripCo™.
Like 5 time champ, I was on Jeopardy!, although I didn’t do anywhere near as well. In 1991, I won $7,201 in one game, receiving a check for $6,634 about three months later. (They delay payment to allow time for any problems with the game – cheating, incorrect answers, etc. – to come to light.) The difference was withholding for California state taxes, even though I did not live in California.
Jeopardy! filed a 1099-MISC form with the federal government and a California Form 591 (“Report of Tax Withheld at Source”) for the cash winnings. They also filed a second 1099-MISC (but no California forms) for about $4,100, the value of my second-place prize (a four-day Bahamas cruise and three days in Disney World).
(Not that you asked, but there was a minor complication on this point because the amount on the 1099 that Jeopardy! filed for the prize was based on airfare from California to the Bahamas, not from Maryland, where I live. So I had to get a letter from Jeopardy! stating that the actual value of the prize was less that the amount of the 1099 and sent the IRS a letter with my return explaining the lower amount entered as additional income.)
So I had to hold back about $1,700 to pay the additional federal tax owed. The total winnings only increased my annual income by about 30% that year, so unlike 5 time champ, I didn’t have to make a quarterly payment.
But I did have to file a California non-resident tax return, and I had to pay taxes to both California ($336) and Maryland (about $600) on the winnings. This struck me as rather unfair, but at the time there seemed to be no other way. I think I was able to deduct the California tax the next year.
So to answer the OP, as of 1991, local tax was withheld, even from non-residents, but Federal tax was not. You were expected to pay that yourself. For really big amounts, you might owe a fine and interest if you didn’t make quarterly payments between receiving the check and filing the return. That didn’t come into play for me.
I don’t know if the procedures or laws have changed since then.
ETA:
No. There’s no bill from the government. The payer informs the government (with the 1099) that you’ve gotten the money. It’s up to you to know how to handle the taxes you will owe when you file your federal return the following April. I don’t know at what income level the requirement for quarterly payments kicks in, but if you don’t make them when you’re supposed to, the IRS will apply fines and interest payments.
It seems that the OP has been answered but I’m curious as to why, what i would have thought was an obvious point, hasn’t been mentioned.
Surely, being told you have won a prize does not in itself carry any tax implications. I would have thought it only logical that you do not have any tax burden until monies are actually in your possession no?
The OP asks if you could have to pay tax before receiving the prize. Regardless of dates/time frames relative to tax returns/tax years etc, surely this would never happen?
If I place a $10 bet on a long shot trifecta and win, how is the tax liability handled? I doubt the IRS would trust me to anonymously collect my winnings, then report them on my return.
I believe it is still true that if you hit a long shot trifecta (somewhere about 300-1 or $602 for a $2 ticket) then you must present your ticket to the IRS window that you will find at almost every track in the US. There they get your taxpayer identification number (SSN) and check your ID. The you have to sign an IRS form to get your cash, but I do not believe there is a withholding right there (it has been a while since I hit such a long shot). I understand that if the odds are 300-1 and the payout is over a certain limit (I think it is $5000), then there is an immediate withholding, but I do not know the percent.
Where you can get screwed is when you win a prize you can’t exchange and have no cash winnings. The tax bill has to be paid by you.
I also was a Jeopardy! contestant. Played one day and came in second - consolation prize was a trip to Puerto Rico. We had to pay California taxes and federal income taxes before travel arrangements could be made.
Don’t get me wrong - we weren’t complaining. It amounted to a great trip at a deep discount, and we used it as our honeymoon.
In the case of a cash prize, you are correct. But in the example Mr. Moto gives (which happened to me, too), I think you have to pay the tax on the prize in the tax year it was awarded to you, not necessarily the year in which you redeemed it. At least that’s what I did. I actually took my trip nearly a year after the air date of the show I was on, in the tax year after I paid the taxes on it.
There may be ways in which one could defer the taxes to the year the gift was actually redeemed, but it didn’t occur to me at the time to look into it.
ETA, It made sense, since I had the cash winnings in that year to offset the value of the trip, anyway. If I had deferred paying the tax the first year, I would have had to dig into my pocket, as Mr. Moto did, to pay it the next.
Well, I know that with The Price is Right, you can decline prizes for this very reason (taxes).
Obviously, the particular woman mentioned in the OP probably won enough cash to cover her other prizes (three Jeeps, among other things). But then, TPiR might be a special case, since there are more potential winners per show than any other, and is one of the only ones where you can win prizes without winning any accompanying cash.
FWIW - Although i’ve never actually been in the situation where it matters and can’t be sure, i think you can pretty much do what you like over here as long as you declare it and pay your dues at year end. No standing over your shoulder stuff for HMRC.
Better still, there is no tax on either gambling or prize winnings. I always thought it sucked big time that upon hitting the jackpot on the price is right, you guys have to stump up a huge sum. That just ain’t right.
I don’t know what you mean by this, unless you’re basing it on the OP’s incorrect (AFAIK) assumptions. As I mentioned in my post, “declaring it and paying your dues at year end” is pretty much the system we have.
I’d be perfectly happy to have this system in the US.
Just to confirm the situation in the UK is that the prize winner does not have to pay tax on their winnings so long as the prize is not related to their trade or business (if an author wins a literary prize they would have to pay the tax). HMRC take their cut from the business organising the lottery or competition!
