Winning a prize on a game show may seem like a stroke of good luck, but these prizes can, and likely will, be taxed. Just how they’re taxed depends on a number of factors including the state in which you live or won the prizes, the prize’s worth and your individual tax situation. Because the prize was not sold to you, you probably won’t face a sales tax, but this doesn’t mean you will get to enjoy your Wheel of Fortune prizes entirely free of tax implications.
You likely won't have to pay sales tax on your game show prize. However, use taxes along with federal and state income taxes may apply depending on your location, tax situation and prize value.
Sales Taxes Vs. Use Taxes
When you win a game show prize – whether it is a cash prize, a vacation or a physical prize such as a car – you probably won’t have to pay sales taxes on it. This is because sales taxes are only collected on items that have been sold to you. According to the popular financial website, Investopedia, sales tax is, “a consumption tax imposed by the government on the sale of goods and services.” Because you haven’t purchased your prize, you won’t have to pay sales tax in any state, but you may be responsible for paying a use tax.
Currently, 45 states as well as the District of Columbia collect use tax, which the Sales Tax Institute defines as, “a tax on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid.” A use tax is generally the same rate as your state’s sales tax, but applies to items purchased – or in this case, prizes won – in a different state than which you live, but that could be taxable in another state.
For example, if you win a car in Arizona, and live in California, you won’t have to pay sales tax on the car in Arizona because you did not purchase the vehicle. But, if you plan to use or store the car in California, then you are likely responsible for paying a use tax on it, since no sales tax was collected in Arizona.
Federal Taxes – Game Show Prizes
When you win a game show prize, the IRS as well as certain states will view and impose taxes on game show winnings as ordinary income. Even though you won the prize from participating in a game show, and did not have to necessarily work for or earn it, for tax purposes your prize is considered income. And, as a result, you may be expected to pay state and federal income taxes on it depending on your prize’s value, manufacturer's suggested retail price (MSRP) or fair market value. Prize winners are taxed according to their individual standard income tax rate or bracket.
If the prize is more than $600, the game show is supposed to report your prize winnings to the IRS and issue you an IRS Form 1099-MISC, Miscellaneous Income. But, if for some reason you do not receive this form from the game show, you are still responsible for reporting your winnings when you go to file your federal tax return. However, if the prize has a value of more than $5,000, then you will face automatic federal taxes withheld to the tune of 24 percent – regardless of whether it is a cash prize or merchandise.
State Taxes – Game Show Prizes
Depending on your state, you may also have to contend with state income taxes on your game show prize as well. As of publication, seven states do not levy state income tax, so you won’t have to pay taxes on your prize winnings in that state if you win or live there. But, this does not mean you won't have to pay taxes in your home state if it does tax your winnings, yet the state in which you won does not.
The states without income tax include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Although, if you are a resident of Tennessee or New Hampshire, then you are also spared state taxes, as these two states only tax income from dividends and investments.
Taxes on Cash Prizes
It’s worth noting that cash prizes aren’t treated differently from any other prize you win on a game show; you will still have to pay taxes on your winnings. In fact, your winnings could also boost a portion of your income into a higher tax bracket, depending on your filing status and other income you’ve received for the year.
For example, if you are a single filer and win $10,000 in prizes (cash or otherwise) from a game show you appeared on, and you also earned $35,000 from your employment for 2019, then your $10,000 prize will take you from the 12 percent tax bracket to the 22 percent bracket.
Bear in mind, however, that all of your income for the year will not be taxed at the 22 percent rate, only the portion that exceeds the limit of $39,475, which is the cap for single filers in the 12 percent tax bracket for 2019. Using the example of a $10,000 prize and $35,000 of earned income, this means that $5,525 of your income for the year will be taxed at the higher 22 percent rate at the federal level.
Valuing Prize Winnings
When a prize is not money, such as a vacation or a car, then its value is determined by MSRP or fair market value. However, cars are generally not sold for MSRP, and vacation packages can often be found for less money than at which the game show values them. There is also no official IRS ruling on how the prize must be valued. If you feel the valuation of the prize is too much, proving that this prize was overvalued will lower your tax obligation, as long as you can show why you feel this is the case.
Keep any documentation that shows why your prize is valued less than what the game show reported, because when you go to file your taxes, you have to prove how you came to this conclusion. If not, in the case of an audit, you could be on the hook for the higher reported value by the game show and face penalties or a larger tax burden.
Reporting Your Game Show Prize
Reporting your game show prize is pretty straightforward. Whether you receive an IRS Form 1099-MISC for your winnings or not, you are still responsible for reporting it in your personal income tax return. If you have prize winnings to claim, then you need to do so on Schedule 1, Additional Income and Adjustments to Income, and attach it to the new version of IRS Form 1040. Beginning for tax year 2018, the new form combines previous versions of this form into a single shorter, more streamlined form.
- Sales Tax Institute: What Is the Difference Between Sales Tax and Use Tax?
- California City & County Sales & Use Tax Rates
- Sales and Use Tax
- Forbes: The New 2019 Federal Income Tax Brackets And Rates
- Cohen Silverman Rowan LLP: Tax Issues
- Sales Tax Institute: What States Impose Sales/Use Tax?
- IRS: About Form 1099-MISC, Miscellaneous Income
- IRS: Instructions for Forms W-2G and 5754 (2019)
- Lend Edu: Personal Finance Do You Need to Pay Taxes on Game Show Winnings?
- IRS: About Form 1040