Updated December 15, 2020
Winning big on a game show may feel like a dream come true—but the IRS always gets a seat at the celebration. Game show winnings are taxable income, whether you receive cash, a car, or an all-expenses-paid vacation. After the confetti settles, winners receive a Form 1099 reporting the full fair market value of their prizes, which must be included on both federal and state tax returns. In this article, we break down how game show winnings are taxed, why prize winners can face unexpected tax bills, and what contestants should consider before accepting non-cash prizes.
We all have our favorite game shows such as Wheel of Fortune, The Price is Right, and Lets Make A Deal and we love to have the contestants win big. Often the game show hosts will ask “what you are going to do with the winnings?” The answer is usually “buy this or that” or maybe “go on vacation.”
We seldom if ever hear a contestant or the host mention anything about giving the government part of their winnings. But after all the celebrating is over, the game show will issue the winning contestant a 1099 for the amount of the cash and fair market value of the prizes won, which is taxable on the contestant’s state and federal tax returns.
If a contestant wins cash they just need to set aside enough of the cash winnings to pay their taxes! The amount of the tax will vary by individual based on their tax bracket and the state they live in. The federal tax can be as high as 39.6% and some states’ as high as 13%. Most individuals who are contestants on these programs are probably in the 10-25% federal tax brackets and 2-5% state brackets, making the tax on the winnings around 22%.
But what happens to the contestant that wins a prize? They will be taxed on its fair market value, which is usually full retail value. So they will have to dig into their own pockets to come up with the cash to pay the taxes. And if the contestant wins something they have no use for, they are still stuck with taxes unless they refuse the prize or contribute it to charity. Then think about the individual with limited means that wins an $80,000 vehicle. It might well cost them $17,500 or more (which they probably don’t have) just to pay the income taxes on the prize. Or consider the contestant that wins a bunch of expensive trips and will have to dig into their pocket to pay cash for them. Do they even have enough vacation time to take them?
Receive a detailed risk assessment to assist in lowering problem areas that could wipe out all of your assets with one wrong move. Speak with an Anderson Professional Advisor to get your FREE Strategy Session.
Limited-Time Offer: ($750 value.)
