Do I have to pay taxes on game show winnings? - NerdWallet
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Do I have to pay taxes on game show winnings?

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Taxes on winning money

What kind of taxes will you have to pay for winning money on a game show or a lottery?

The short answer to this question is that it depends on your state, and how much you’ve won. If you win money on a game show you do have to pay income tax on the winnings. On your tax return you would file game show winnings under Miscellaneous Income. You will also receive a 1099 tax form from the entity that awarded you the cash prize. For example, under the rules section of Who Wants To Be A Millionaire, it explains a contestant will receive a 1099 form to declare taxable winnings on prizes valued at $600 or more. That doesn’t mean that if you win less than $600 you are exempt from declaring it on your tax return. It simply means that they may not send you a 1099, but according to the IRS even winnings as low as $50 must be declared as taxable income.

How much you have to pay depends on certain factors. One is whether or not your state charges an income tax. Seven states don’t charge income tax, so if you win a game show while living in one of those states, you’ll be in better shape. Second, what tax bracket will you fall into after winning your money? If you win a game show, you might make a considerably higher amount than your annual salary. This new injection of cash could then put you in a higher tax bracket.

Let’s say you won $25 million in the lottery in New York City. City and state taxes add up to 12.7% (rounded up to the nearest tenth). Add 25% for Federal taxes, which comes to 37.7% or $9.4 million that you will have to pay in taxes. This is also true for winnings from a game show. The only difference with the lottery, again, comes down to the state. Certain states do not tax you for lottery winnings, such as California. If you live there you can expect to only pay Federal taxes. So there you would only pay 25%, or $6.25 million in taxes.

What if I won a vacation or a car instead of money?

Winning prizes on a game show is anything but free. Prizes have a monetary value attached to them that will be considered by the IRS. Say you win an all expense paid trip to Mexico. There will be a prize value attached to that trip, the same as a car or a TV. If the prize value attached to the trip is $10,000, then you will be expected to declare $10,000 to the IRS and pay applicable taxes on it. When you win prizes that are not actual money, it’s important to know exactly what the monetary value of the prize you are receiving is.

If you win a prize that isn’t money, you can end up owing more in taxes than you can afford. This can become a serious headache, because if you accept the prize and you can’t afford to pay the taxes on it, you could face serious penalties. You may decide to sell the item, pay the taxes you owe for it, and then keep the rest of the money as profit. Sure, that’s possible, but it’s not definite that you will be able to do this. Especially at a price that makes it worthwhile for the time you might have to spend selling it.

How do you get around paying taxes on these winnings?

One way to avoid owing large amounts of money to the government is by gifting all or a certain amount of a prize, and claiming the exemption on your tax return. The IRS provides a comprehensive guide with clear examples on their website of how much money you can exclude on your taxes. Remember that the person giving the gift is always responsible for paying the taxes on the gift. Speaking of the gift tax, you may be saying to yourself: “But isn’t winning a prize like I’m getting a gift? Meaning it would be tax exempt?” Nope, in the eyes of the IRS, winning a prize is like getting a payment. You are being paid to compete on a game show, and what you win becomes income for your time and services. If you want to give away prize money as a gift, you can make gifts of up to $13,000 to as many people as you want without having to pay gift taxes on it.

Does it make a difference if you win a prize without entering a contest? 

Remember when Oprah gave everybody a new car? None of them entered in a contest or signed up to win a prize, but guess what? They all still had to pay taxes on it. Even if you didn’t sign up to win, you are still liable for the taxes owed on any prize you receive, no matter what. In certain cases, as with the Oprah show, the company giving away the prize (in this case Pontiac) will agree to pay a good amount of the fees that come with the prize, but that doesn’t mean they will cover all of it, or even half, of what you could end up owing.

Are prizes taxed differently than gambling?

In some ways, prizes and gambling are taxed similarly. Both are miscellaneous income that you must report to the IRS. Gambling has plenty of strange rules governing its taxation. Some of those differences may work in your favor when declaring taxes. When it comes to the lottery (and, yes, the lottery is gambling) there are states that don’t impose a tax on your winnings, as mentioned above.

For the lottery or most casino gambling, you can deduct your losses. Nice, right? Of course, there are stipulations to this. You can only deduct your losses if you actually end up winning eventually, and your winning amount must be more than your losses. So if you’ve spent $300 in lottery tickets and win $3,000 dollars, only $2,700 will be considered taxable income. You also have to itemize all these losses (and winnings). This means keeping every lottery ticket, or every receipts from what you spent at a casino.

How to keep your head above water after winning a prize

First and foremost, always pay the applicable taxes on any prize you win. It’s best to pay estimated taxes right away on what you win to avoid any possible penalties, or just spending all the money.

If you can, always take the money for a prize. If you win a vacation valued at $15,000 dollars, ask if you can just have the $15,000 instead. That’s because you’ll end up owing close to $6,000 in taxes (in New York state). That’s a lot to pay for a supposedly “free” vacation. You’d be better off taking the money, and then using it to pay for a smaller, more affordable trip.

Like I mentioned earlier, it is extremely important to know the exact value of your prize. The entity giving you the prize is also most likely slightly inflating the value, not only to entice more people to compete, but also because it’s a tax deduction for them. That same $15,000 vacation may not really be that expensive. Keep track of your receipts and expenditures, so you can contest the company’s valuation, if necessary.

Lastly, sometimes it’s good idea to just turn down a prize if it’s not money, and if it has the possibility of becoming a tax burden. Winning money’s not so bad, because you can always cover the taxes out it with your winnings, unless you blow it all before your taxes are due (don’t do that!). Objects or vacations, on the other hand, may not always be worth the trouble. Taking the example of the Pontiac G6 that Oprah gave every member of her audience. The manufacturer’s suggested retail price ($21,265) with only a 25% Federal income tax imposed means you would owe $5,318.25 in taxes. The car’s nice, but don’t you already own one? Are you financially able to set aside $5,000 to pay the taxes you owe on that sweet prize? Maybe you can sell it and come out even better, but it’s important to be realistic with yourself and not let the glitter of a fantastic prize blind you to what lays down the road. Sometimes you should just say “no thank you” and walk away.

…Or you can gift it to me.

Winning money image via Shutterstock

  • Joe

    I went to the program highlights of the Ultimate Program and slide down to the travel section. In there, I slide down to the transfer your points to your airline mileage card and read that the Saphire and the Ink Business card can do it, but did not see the Freedom card, so does this mean that the Freedom card will not be able to transfer the points to your airline frequent flyer program?

    Also, what other airlines participate in the program besides British Airways and the United-Continental

    • NerdWallet

      Hey Joe, the reason for that is because the Freedom card doesn’t pay Chase Ultimate Rewards, it pays cashback rebates. You can opt to receive those rebates in point form, and then exchange those points for gift cards, merchandise, and such, but those points don’t have the same option to transfer to airlines. That is a benefit offered only for cards like the Sapphire and Ink that pay rewards in the form of Ultimate Rewards Points.

      As for which airlines participate, there aren’t many. We did a write-up comparing the options for Ultimate Rewards and the options for Starwoods points – check it out here.

      • Joe

        Does the Sapphire card have a higher requirement of credit? Because right now I am applying the Freedom card in a joint-account with my mom because I don’t have credit history. Does it usually for me to take like a year of accumulating credits to upgrade to Sapphire?

        also, I know this question is a little irrelevant to the topic, but does it apply to the United Mileage Plus card too that you need to have close to perfect credit score in order for you to apply?

        • NerdWallet

          Both cards are typically only approved for people with “good” credit, though the credit card companies take a number of different pieces of information into account when deciding whether to approve you.

          Your best bet is to try to apply, and see what they say. If they reject you, they’ll generally tell you why, and then you can work to improve whatever problems they have.

          • Joe

            In your opinion, do you think the Freedom Card is better or the Sapphire card is better, and their pros and cons? Thank you again

  • NerdWallet

    Hey Joe, they’re both very different cards, so which is better will depend on how you’re going to use the card. Here is a link to our Chase Sapphire page, so you can see what we think about it.

    The biggest difference is probably that the Sapphire is geared towards travelers, since it pays double points on airfare and hotel purchases, and the Ultimate Rewards are transferable to airline mileage programs.

    Freedom, on the other hand, is a cash back rewards card. This may be a better choice for most users, because cash back is the simplest reward you can get. Plus it pays 5% back on rotating categories.

    • Joe

      But at the bottomline, the Freedom card can still earn point for each dollar you spend and can redeem merchandise or gift at the points it needs for you to accumulate to redeem right? It is a little disappoint to know that the Freedom card cannot transfer the points to the frequent flyer mileage, but it is better than nothing.

  • Joe

    I have one more question regarding to the Chase Freedom Card. I recently received my Freedom Card and actually spend my first purchase using the card with paying my Sprint phone bill. After two days when they post the final amount that I owe on my account for the Freedom Card, I paid it off instantly. However, the problem is I still haven’t see the reward points posted to my account after 2 days. Plus, since they said that you get 5000 points after you made your first purchase, until now, I still haven’t see that post either. I have read that it may take them 6-8 weeks for them to post that 5000 points, not sure whether it really takes that long to post it. So does it mean that paying my bill using the Freedom Card doesn’t count toward point rewarding?

    • NerdWallet

      Paying your bill should definitely count for the 5,000 points. Sometimes these cards do take 6-8 weeks to post your sign-up bonuses, and the points you earn on day-to-day purchases might not show up until your billing period ends.

      When you get your first statement, check it for a rewards summary. If you still don’t see your rewards, give Chase a call because something is wrong. The sign-up bonus, however, may not post until your second statement.

  • Joe

    I just got my statement of my Freedom card and review the reward points. However, I only saw 1,000 points being added to my account. I emailed and asked the Chase Customer Service about my situation and they replied that they don’t see a promotion of 5,000 points or $50 cashback offer on my account. Instead, they said it only showed that I got an offer of 1,000 points bonus. That left me wonder where did that 1,000 points offer came from and why the 5,000 points offer does not applied to me. Do you know what went wrong during this transaction and what is the whole situation? Thank you

    • NerdWallet

      It’s hard to say Joe, since Chase has changed the sign-up offer on this card so many times in the past few months. You can see they’re offering $100 cash back now, and they were actually offering $150 not too long ago.

      Do you have paper or electronic copies of the offer that you signed up for? When did you sign up for it? And where did you sign up for it – on or another site?

      You may want to call them again and complain that you signed up for a $50 cash back offer. You know that they’re offering $100 right now, so the least they can do is give you $50. Basically, give them hell and threaten to close your account if they don’t treat you right.

      • Joe

        I got it all straight. Once they replied the message about the 1,000 points, I immediately replied to them with the website that showed the $50 cashback offer and asked about the $100 cashback. What they replied to me is that not only I got back the $50 or 5000 points, but I also got $100 or 10,000 points from them added to my account even though I haven’t spend $500 yet.

        • NerdWallet

          Nicely done!

  • Jblujean

    I have a Chase account already. I just want to apply for the cashback

  • Jeffjahnz

    I’m looking for a card to save money on being we purchase a lot of gas for our business. Is this a good card for that? Or do I only get cash back when ti is in the quarter where the rewards are for gas? I’m looking for those rewards of cash back every month.

    • NerdWallet

      Hi Jeff,

      You receive 5% cash back in the quarters where gas is a bonus category (Q1 and Q3), and 1% rewards on non-bonus spending, so you average 3% rewards on gas every year. One good card for businesses is the Costco TrueEarnings business card:
      It gives 4% on gas, up to $6,000 in purchases per year, plus 2% on dining and travel. The major bonus is that it earns bonus rewards on Costco gas, whereas most merchants won’t give you a bonus on warehouse (ie, Costco) spending. It’s a better deal than the personal Costco Amex.

      If the $6k cap is restrictive, try the Amex SimplyCash for Businesses – it gives 3% cash back on gas up to $12k spent annually.

  • Gailmeister

    I need a chip and signature Mastercard with no foreign transaction fee. Help!

  • nerdwallet

    Thanks Adam, the $100 promo isn't universal. If you sign up through one of the deals on our site that says "$100 cashback", though, you should get it.

    Hope it all worked out for you!