When someone wins a high-value prize in a drawing, how much in taxes does he pay? Is it a fixed percentage? Or is the value added to his income and it’s calculated like income tax?
(Assuming US taxpayer)
The value of the prize is added to income and then is figured using the income brackets. If the prize is large enough, it can do all kinds of nasty things to you (like disqualifying you from certain tax credits) just by pushing up your total income.
If you have gambling losses, these can partially offset the increase in tax; the losses would go on Sch A as part of itemized deductions.
If prizes are large enough, you’ll receive either a 1099-MISC or W-2G from the organizers of the drawing, but you’re supposed to report the income regardless. (It’s just that if you do get one of those forms, the IRS will be expecting to see it on your return).
On a million dollar prize, for example, you’ll pay 35% to the Feds and whatever % to the state you live in, unless that state exempts lottery wins. So if I hit it big in Vegas, I’ll get 58% of whatever I won (35% Fed, 7% State). Roughly, ignoring all the progressive tax brackets.
Just to add a non-US data point, gambling winnings in the UK, whether in a casino or in a lottery, are tax-free. 
I collected $6,750 net on a $10,000 scratch ticket.
It was not optional in any way to forego having the taxes withheld at the time I collected the prize and I received a form in the mail (similar to w-2) at tax time.
Commander Fortune is not contradicting the previous posters. When collecting the prize, a portion of it is withheld for taxes. But that is only an estimate, just like the regular taxes which are withheld from every regular paycheck.
At the end of the year you add up all your income, which includes all the paychecks, and all the prizes, and whatever else, and figure out how much of that goes to the government. Then you add up all the taxes that you’ve already paid, which includes what was withheld from your paycheck, and what was withheld from your prizes, and maybe some other stuff. And then you compare the two numbers, and maybe you still owe the government more, and maybe you already gave them too much, which they’ll refund to you.
Several years back our daughter was a contestant on Hollywood Squares. She won maybe $7K or so. Before she left the studio they gave her a check for just over $5K.
It will be a bit higher than that. The millionaire tax bracket is 10.3%, isn’t it?
It was withholding though, so she probably got some of it back on her refund, assuming she isn’t in a high bracket.
Last I checked (couple years ago), the 1099 was issued if you won more than $1200 at one visit. But you’re still supposed to report $1 winnings even if there is no record.
I won $1700 at an Indian casino a few month back. I walked out with all the cash and my copy of a 1099 form, the winnings will be reported to the IRS.
I’m guessing that this is a compromise that the feds made with the extraterritorials. I think other casinos have to withhold for winnings over $600.
As they are here in Canada.
Well, yeah. Just like what happens to people that have their total income pushed up by, you know, paychecks.
Even if you win in Vegas (or anywhere in the USA) you simply have to prove you went back to Canada and the withholdings will be refunded, thanks to tax treaties. If you can’t figure out the form, there are signs along the highway at the border offering to help you recover that money for a fee.
This goes for Sweden as well (or, rather, taxes are payed by the organiser or the lottery or whatever), but if there is a, however small, trace of not chance (like having the winner answer a question like “What is the shape of a round coin?”) involved it is considered work and the prize is added to your income and is taxed that way.
True, but I added that point for a reason.
If you claim the gambling losses on your Sch A and thereby eliminate income tax on the money, you might not realize that your higher AGI factors in all other the place on you tax return. Child tax credits, earned income tax credits, deductible medical expenses, mortgage insurance, student loan interest, and education credits are all impacted.
People who count on these things are often in an artificially high tax bracket when those start to expire. One of my clients was in the 28% income tax bracket for their top income, but reductions in credits and deductions meant that additional income was increasing their tax at 37.1%. These folks would have paid almost 10% tax even on gambling winnings that were fully offset by losses.
I bought a raffle ticket. (It’s OK; the money goes to a good cause.) The winner will have to pay taxes on the prize in order to claim it (emphasis mine).
So let me see if I understand. The winner will be responsible for paying 35% on $28,900 ($10,115) plus state taxes on that amount, and that amount must be paid at acceptance of the prize. Then when the winner files his or her taxes, the $28,900 is counted as income. If the taxes due on the person’s income-plus-winnings are lower than the taxes collected at the time of acceptance of the prize, then the person receives a tax refund. If the tax liability is higher, then he or she will owe taxes. For example, a person might owe $9,000 when the winnings are applied to his or her taxes, so there would be a $1,115 refund.
Is that the way it works?
Pretty much, although I doubt the liability will be higher. Numbers are probably not exact, as the highest bracket is actually 35% of the earnings above $388,350, and not on every dollar earned (single rate).
Usually (always???), they will offer you money in the fair market value or sale price of the plane in lieu of the prize if you so choose. It’s almost always a good idea to take the money instead of the plane or car, unless you were absolutely planning on buying it in the first place.
Well, ignoring the progressive tax brackets can make quite a difference. Plus State tax is deductible, so if your state tax is 7%, your Federal tax rate would be 35% of 93%, i.e. 32.55% for a total of 39.55% (unless you take the standard deduction).
Except then you might fall victim to the AMT, and have to pay more because of that.
That’s why I said “roughly.” 
The real rate will depend on your regular yearly income, whether or not you income average over the last 5 years, what charitible deductions you claim from the winnings, and other things that keep accountants gainfully employed.
It is certainly not an always. As an example, sometimes these drawings are done by charities and the prize was donated. So if they received an airplane from a donor, you get an airplane. They don’t necessarily have cash available as a substitute, and may be trying to avoid the hassle of selling it themselves.