Taxes On Game Show Winnings – Here’s What You Need To Know
If you think game show winners are living their lives with the insane amount of money they bagged from winning game shows like Jeopardy or Wheel of Fortune, think again. These shows do make normal people a little bit richer, but there is more to the story than that.
Hitting the jackpot has its drawbacks. Game show winners can’t just take home all of the prize money. This is because these winnings are still subjected to taxes regardless of how big or small the amount is.
The taxation of your game show winnings depends on several factors. These include the state in which you live or won the prizes, it’s total worth as well as your tax situation.
The good news is, you can get away with sales tax because you didn’t purchase your winnings and it was never sold to you in the first place. However, it is worth noting that you might be responsible for paying a use tax.
Read further to gain more understanding of how taxes on game show winnings work.
Taxes And Game Show Winners
The disappointing truth about hitting the game show jackpot is that you will be taxed for whatever you won from it — not just cash prizes, but also tickets and merchandise. This applies to all types of game shows.
You also have to report the value of your winnings to the Internal Revenue Service (IRS) even if it is just below a hundred dollars.
Whenever you win at least $600 from game shows, you have to file a 1099-Misc tax form to be signed by the entity or the host of the game show from where you received the prize. A copy of this form should be submitted to the IRS for proper recording as well.
But do not worry, because the taxes you have to pay are still based on the amount that you would win, and also, these taxes would not eat up almost half of your winnings.
Is There A Way To Avoid Taxes On Game Show Winnings?
There’s no way you can avoid paying taxes for prizes you won from game shows unless you are residing in states or countries where income taxes are not collected. If you don’t, another best option is to refuse to accept the game show prizes you received if you think you won’t be able to pay the taxes resulting from it.
Will Your Tax Bracket Be Adjusted After Winning From Game Shows?
Technically speaking, the cash prizes you win from game shows would be considered your income, so your tax bracket would change after receiving your cash prize. Each state has its own adjustment scheme, but there’s no doubt that your tax bracket will be adjusted if you win more than your average annual income.
For example, you won $10 million from a game show hosted in Portland, where you are a registered taxpayer and a resident of the state. The cash prize you won would add up to your regular annual salary, and therefore, your total income would be subject to city and state tax assessments. The worst part about it is that you would have to pay taxes worth about 30% of your cash prize.
There are ways to lower your tax bracket (or at least keep it the same) – even if you win a large amount of cash. For starters, always opt for the payout option, rather than one lump sum.
Not only does this insure that you’ll have steady income for years to come, but it also means that you can pay a lower tax rate, than if you were to take one big, lump sum. Next, if you donate to charitable organizations, you’ll avoid paying taxes on this money – which will lower you into a better tax bracket.
You can also give smaller cash gifts to friends and family, to reap the same benefits. If you invest the money, you can also pay fewer taxes, as you’ll be taxed at the capital gains rate, on any profits.
What If You Won Game Show Prizes Other Than Cash?
All your winnings are based on a pre-specified budget given to the producers or administrators of a game show. Therefore, all the prizes they would hand out have monetary values, and you would still have to declare their amount so you can pay taxes based on it.
Suppose you won the newest mobile phone with its retail price set up at $5,000 by its manufacturers, then you would pay taxes based on its value. So every time you win game show prizes that are not cash, you have to take note of their values.
One way to maximize non-cash prizes you win from game shows is by selling them. You can sell them at market price and then use the profits to pay off the taxes while still keeping some cash for yourself.
Are Game Show Prizes The Same As Gambling Winnings?
Yes, game show winnings and gambling prizes are treated similarly as part of your income. Hence, if you win, you are required to report them to the Internal Revenue Service for tax purposes.
However, you can deduct your losses from the total amount of tax you have to pay, for cash and other items you won through gambling, if you do end up winning. For example, if you spent more than $100 on slot machines, but you won $5,000, only $4,900 would be considered taxable. You also have to keep each receipt, token, or gambling tickets you bought prior to winning the prize, for audit purposes.
How Much Taxes Do Price Is Right Winners Pay?
While winning a lot on the Price Is Right sounds good – the reality is you may be giving up almost half of the money to taxes. For example, some winners have reported winning about $60,000 – but paying nearly half of this ($30,000) to the tax man.
Additionally, if you win an asset (like a car), you will have to pay the tax before even receiving the prize. You will also likely be paying the tax on the MSRP (the manufacturer’s suggested retail price) – which is far higher than the price a car dealer would give you.
As such, you will want to think far ahead, if you win big on the Price Is Right (or any other game show). Like most things in life, it might seem good at first – but you should be careful and read the fine print.
How Much Tax Do You Pay On A $10,000 Lottery Ticket?
This is a little bit complicated. Essentially, you will pay tax based on your tax bracket.
You may also be pushed into a higher tax bracket (where you pay more taxes) if you win any amount, either from a game show or a lottery. The next factor that determines how much you’ll pay in taxes? Your state.
If you live in Pennsylvania and win a lottery, you may pay more than the taxes you’d pay in Florida. If you are a nonresident of the United States, your tax rate may vary even more.
If your winnings “at source” – this can also impact your tax rate. Whether it’s a game show or a lottery, you will always end up paying taxes on the money – there’s simply no way around it.
How Much Tax Do You Pay If You Win A Car?
It’s impossible to say exactly, as there are many factors which go into determining how much you will pay in taxes. However, there are a few factors to consider, when it comes to determining the tax rate of a car won on a game show.
The most important bit of information to understand, is that you will pay tax on the full MSRP – which is the manufacturer’s suggested retail price. This price is far higher than any dealer would ever make you pay for the car.
So, for example, you might win a car that sells for $10,000 at a dealer – but the MSRP is actually $13,000. This means you will pay taxes on $13,000 – not $10,000.
The next key understanding, is that you usually have to pay the tax before you even get the car. So, using our example at $13,000, you might have to pay $4,000 in taxes – before you even have the car in your driveway.
Needless to say, this is far more than you might expect. Winning a car isn’t free – and every consumer should be aware of that.
How Much Do You Take Home If You Win A Million Dollars?
While there is not one set amount, the taxes on a million dollars are quite substantial. You could end up paying almost 50% of the total, to the IRS.
There will be multiple variables which impact the final payout amount. First, what state do you reside in?
This will help determine the state tax rate for the money. Next, you will want to consider what state the game show (or lottery) took place in.
For example, if you won $1 million on a game show that took place in Los Angeles – but you live in Florida – there could be tax ramifications for that. Whatever way the ball bounces, the odds are that you will have to allot nearly 50% of your million dollars in earnings, for taxes.
Can The IRS Take Your Lottery Winnings?
Here’s a fun one. Before you get any of the payout for your lottery winnings – the IRS will take almost 33% of it.
Essentially, the IRS makes sure that they get their cut. State (and local) taxes will be even more, and winning cash in lotteries (or on game shows) will likely bump you up into a much higher tax bracket.
This means you’ll pay even more in taxes, than a normal year. This is one of the (many) dark secrets about winning the lottery, or even winning $500,000 on a game show.
This is also partially why so many game show (and lottery) winners end up broke. If you are not used to having lots of money, you are extremely likely to mishandle it.
As the old saying goes – “with great power, comes great responsibility”. This is one of the many reasons why we recommend utilizing a tax professional for all of your tax needs – they’ll already know all the pitfalls and traps to look out for.
What Happens If You Win A Car At A Casino?
There are a few paths here. One, you can take the car.
This is a good option, but there are some caveats.
For starters, you’ll need to pay taxes for the car – before you get it. If you won a $90,000 car (like a Tesla) – this means paying up to $30,000 in taxes.
Secondly, you’ll be paying those taxes on the MSRP – which is the manufacturer’s suggested retail price, and is quite a bit more than any dealer would sell the car for.
If you choose not to take the car, usually you’ll be given the option of taking the cash payout, or the same amount for play in the slots at the casino itself. All things being equal, the best option is usually to take the cash payout – or take the car, and gamble with the price that you may be able to sell it for.
What Happens When You Win A Trip?
There is some red tape around winning a trip on a game show. They are almost always not transferable.
Put simply, this means that you can’t give it to someone else, or even move it to another date. So if you win a trip on a show – make sure you clear your calendar far in advance, and hope you have an understanding boss.
How Much Money Do Game Show Winners Actually Get?
Far less than you might think. Game show winners must always pay taxes on their winnings.
As with income tax brackets – the more you make, the more you pay in taxes. If you win $1 million dollars on a game show – it’s quite possible you are going to pay nearly 50% of that money in taxes.
How Can I Avoid Paying Taxes On Lottery Winnings?
You can’t completely avoid paying taxes on lottery (or game show) winnings. However, if you’re smart, you can certainly lessen the total amount of tax you are obligated to pay.
This strategy is multi-faceted, but essentially involves deferring how the total amount is paid out (hopefully over many years, not in one lump sum) – and also by giving out charitable gifts with the money, as well as investing it.
These actions help you drop into a lower tax bracket (where you will be taxed far less). They also allow you to make money (via capital gains, if you make investments) – which is taxed at a much lower rate.
Again, if you want to follow the law and do things legally – you can’t completely avoid paying taxes on game show (or lottery) winnings. However, if you give out charitable gifts to the right organizations, invest the winnings, and take an annual payment (instead of a lump sum) – you will be minimizing your overall tax liability.
The James Holzhauer Story
James Holzhauer is famous for winning over 30 consecutive games of Jeopardy. As you might imagine, this brought him a sizeable amount of money.
Over $2 million dollars, to be exact. However, Holzhauer also lost $1.2 million dollars to California and federal income taxes – meaning he only took home about $1.2 million dollars, in total.
This cautionary tale shows the reality of winning big on a game show. It doesn’t always amount to a huge payout, especially since Uncle Sam will be taking a generous helping of your hard-won money.
Even if Holzhauer had lived in a state without income taxes (like Florida, for example) – he could have taken home far more money. These states do have other issues though, so don’t assume he would have been taking home all of that 2 million dollars, no matter where he lived.
Other Factors To Keep In Mind After Winning Game Show Prizes
Before you go off planning on how to spend your game show winnings, you have to remember that these prizes, whether cash or non-cash and regardless of the amount, would still be subject to tax that you need to pay off to avoid penalties or sanctions from the IRS. It is better to pay these taxes before spending or using the prize for your personal reasons to avoid getting in trouble.
Second, if there is a cash conversion option for prizes that are non-cash, you should opt for it. Cash prizes are the best because it is the most liquid asset, meaning you can utilize cash in a hundred other ways compared to other rewards such as a free exclusive vacation, a new gadget, a house and lot or a brand new car.
If your winnings are fixed or cannot be converted into cash, you should always confirm the value of the prize you would receive from the game producers and staff. By doing so, you would already have an idea of how much tax you would have to pay, and the IRS would be using the game show’s valuation instead of other references.
Lastly, keep in mind that you can always say “no.” Remember that nothing is really free, so if you accept the prize from a game show, you should be prepared to pay the taxes that come with it. If you can’t, then you are better off not receiving the prize at all.
The Bottom Line On Taxes For Game Show Winnings
Cash winnings may sound like a good deal – but they should really come with a disclaimer. These winnings are still subject to federal income tax, and they may even put you in a higher tax bracket.
This means you will need to make sure your tax return is accurate when it comes time to fill out the proper IRS form(s). You will also have to pay state income tax – and your total taxable income will likely be very high – leaving you to pay the highest amount of taxes possible (in all likelihood).
Two of the best examples of this are two big Jeopardy! winners – Ken Jennings and James Holzhauer – both of whom had to pay close to (or more than) a million dollars on their cash winnings. As far as the IRS is concerned, game show winnings are really treated no differently than ordinary income.
This means you have to pay the same tax rate as everyone else – no matter if you’re in Nevada, California, or you even want to try and take some tax deductions. While your total winnings might be in the millions, if you’re lucky – in almost every case, your taxes will end up being in the millions, as well.
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