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If you’ve ever dreamed of running the board on Jeopardy, besting the bonus round on Wheel of Fortune or making it to the Showcase Showdown on The Price is Right, make this part of your fantasy, too: taxes.
Are game show winnings taxable?
If you win money or prizes on a game show, the winnings are taxable.
If you win at least $600, you’ll probably get a 1099-MISC tax form from the entity that awarded you the cash prize, and they’ll also send a copy to the IRS.
Even if you don’t get a 1099, you still have to report the value of your winnings.
Merchandise you win is taxable.
What kind of taxes will you have to pay for winning money on a game show?
How much tax you pay depends on where you live and how much you win.
You’ll need to pay federal taxes on the winnings, but some states don’t have an income tax. If you live in one of those states, you may be in better shape.
What tax bracket will you be in after winning your money?
You might make considerably more than your normal annual salary in the year you win big. That could put you in a higher tax bracket.
Let’s say you win $25 million in the lottery in New York City, where you live. City and state taxes add up to roughly 12.7%. Add a top rate of 37% for federal taxes, and you could end up paying close to half of your winnings in taxes. This is also usually the case for game show winnings. The difference with the lottery, however, comes down to the state. Certain states do not tax lottery winnings.
What if I won a vacation or a car or something else instead of money?
Winning prizes on a game show is anything but free. Prizes have a monetary value.
For example, let’s say you win an all-expenses-paid trip to Mexico valued at $10,000. Prepare to report that $10,000 and pay taxes on it. The lesson: When you win prizes that are not actual money, it’s important to know exactly what their monetary values are.
If you win a noncash prize, you might end up owing more in taxes than you can afford. This can become a real headache because if you accept the prize and then can’t pay the taxes on it, you could face serious penalties. You may decide to sell the item in order to pay the taxes and then keep the rest of the money as profit. And while that’s possible, it’s not guaranteed — especially at a price that makes it worthwhile.
Are game show winnings taxed differently than gambling winnings?
In some ways, they face similar fates: both are income you must report to the IRS.
For the lottery or most casino gambling, however, you can deduct your losses. Nice, right? Of course, there are stipulations. You can only deduct your losses if you actually end up winning, and your winnings must be more than your losses. So if you spent $300 in lottery tickets and won $3,000, only $2,700 is taxable income. When you file your tax return, you’ll need to itemize (which means using Schedule A when you file your taxes) and you’ll need to be able to substantiate your gambling losses if you’re audited, which means keeping every lottery ticket and casino receipt.
How to keep your head above water after winning a game show prize
First and foremost, pay the applicable taxes on any prize you win. It may be a good idea to pay estimated taxes right away on what you win to avoid any possible penalties later.
Consider taking cash instead of an object. If you win a vacation valued at $15,000, for example, ask if you can just have the $15,000 instead. That’s because you could owe thousands in taxes, which is a lot of cash to come up with for a supposedly “free” vacation. You may be better off taking the money and then using it to pay for a smaller, more affordable trip.
Know the exact value of your prize. The entity giving you the prize may slightly inflate the value in order to entice more people to compete or to create a larger tax deduction for itself. That $15,000 vacation may not really be that expensive. Contest the company’s valuation, if necessary.
Don’t be afraid to turn down a prize if might become a tax burden. If you win a car that comes with a $5,000 tax bill, are you financially able to set aside that much cash for the taxes? Maybe you can sell it and come out ahead, but it’s important to be realistic and not let shiny objects blind you to tax consequences. You can always use cash prizes to cover the associated tax bill, but scrounging for cash to pay the taxes on objects or vacations may make them not worth the trouble. The real reward may come from simply walking away.
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