Just a (hopefully) quick question—in the US, are you required to pay taxes on prize money from contests? Say, you won some money in a literary competition, or something in that vein, do you have to pay taxes on those winnings, and if so, how much?
Yes. It’s considered to be regular income and you’ll be taxed at whatever bracket you’re in.
That’s normal income … yes, it is taxable and you will be including the winnings in the AGI … that new car you won generates a 1099 … I believe these TV game shows offer to cash the winner out and many contestants opt for that so they can pay these taxes …
Casinos have an obligation to withhold taxes from any largish win … I’ve heard the bitching about winning a $10,000 fire bet and only getting a check for $6,000 …
Yes, you pay taxes on lottery winnings, casino winnings, game show prizes and similar things.
Some members of the studio audience for Oprah found this out the hard way when she gave all 276 members of the audience a car to kick off the 19th season. It was very generous but the cars weren’t truly free because of taxes.
"William Toebe attended the show with his wife, Jillaine, and he immediately thought of the tax implications, which stretched to $6,000 or more for some audience members. It was a tough reality for many in the audience that day, some of which had been selected based on their need for a new car.
The tax implications stretched to $6,000 or more for some audience members.
“That responsible part of me stepped forward and wondered ‘where am I going to get the money to pay the taxes?’” he recalled. Two people meant two cars – and taxes to the tune of more than $12,000. The couple took the cars, then turned around and sold them immediately, paying the required taxes and using the rest to pay off bills.
The Toebes came to exemplify the other side of the Oprah show stunt. Yes, many people got free cars, but the cars weren’t really free. Additionally, the cars on the show weren’t the actual cars the audience won. After the taping, members went home and took delivery of their G6s through their local Pontiac dealer.
Conversely, some audience members, like Vielweber, took the view that they were receiving a new car, which stickered for about $28,000, for just $6,000.
“Everybody that wins something pays taxes,” she said."
Some game shows don’t actually require winners to take the prize shown for that reason. They often offer cash equivalents so that the winners can afford the taxes.
Why weren’t those cars considered “gifts”?
They are … and there’s taxes on that … “Gift Tax” – IRS – Oct. 3rd, 2016 …
You can even be taxed on a forgiven loan … the lender lets you borrow $10,000 … then says you don’t have to pay the money back … you have to pay taxes on the $10,000 … trick eh? …
Same question: I can see paying for games of chance, but those people on Oprah didn’t enter any contest or play any games of chance, and had no expectation of winning ,or even being given, any prizes. They were given gifts, not earning income.
edited to add: NM-answered.
So why are the people getting the cars paying this tax?
Gift tax is only on the giver, i.e. Oprah or her company.
Lottery winnings are often (always?) exempt from state taxes… if you play in the same state you’re a resident in.
Casinos withhold winnings greater than $1200
I won $4,000 with a Royal Flush at the Reno Airport (yea me) They didn’t withhold any, but I did get a tax form and had to declare it, and pay taxes on it.
Yes, that’s what I was wondering as well. I thought the person giving the gift paid the tax?
Oprah and her company never owned the cars. The cars were all donated directly by General Motors as an advertising gimmick, to the tune of more than $7 million. GM was not about to pay any gift tax on the donations, leaving it up to the recipients to foot their own tax bills.
Thanks for chasing down that information … my fault for not digging deep enough … “rabbit-hole” adverse this morning …
I’m not finding a passage that says “If the giver of the gift refuses to pay the tax, the recipient is stuck with the bill.”
I found this on line.
I’m not sure about the episode in which cars were given to the audience, but for the “Favorite Things” episode (in which audience members also get free stuff), I believe the audience members are specially selected. I think some affiliates have contests with tickets to that show as the prize. So the cars or the Favorite Things merchandise aren’t really “gifts” but contest prizes.
Well, that makes sense. I wonder why Oprah, having heard about the audience members having to pay taxes, didn’t offer to pay them for the audience?
No they werent. If they were Gifts there would be no taxes to the recipient.
Yes, sometimes you do, sometimes not. That one is tricky.
You’re right, I know better but misspoke. I meant to say that $1,200 triggers a W-2G form, and then the IRS definitely knows that you won. Withholding on gambling winnings varies, generally:
Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding. *Any sweepstakes; wagering pool, including payments made to winners of poker tournaments; or lottery. *Any other wager if the proceeds are at least 300 times the amount of the bet.
You can of course deduct gambling losses up to but not exceeding your winnings, generally on Schedule A.
This is one good reason to account for your gambling losses … the other to know when you have a gambling problem …