Do I Have to Pay Taxes on Prize Money?

All of the experts agree that a consistent bedtime routine is key to getting your kids to bed easily and to fall asleep quickly.

Things that have worked in the Kratovil home? Reading bedtime stories. Listening to lullabies. Having Alexa remind the kids it’s bedtime (I got that idea from the Triple Comma Guy on Silicon Valley).

And playing HQ.

My girls (okay, me and my husband) have become obsessed with playing HQ. What is HQ? It’s a daily trivia game through which players can outright win or split prize money if they can correctly answer a series of questions of increasing difficulty. Players have ten seconds to answer each multiple-choice question (meaning no time to phone a friend or ask Siri or Google).

HQ is played at 8:00 p.m. in our time zone which lucky for me coincides with bedtime. The girls know as soon as mom and dad are out, it’s lights out and time for bed.

We have yet to win HQ. The only person I know who has won is my super smart brother-in-law (who may or may not have had assistance from is equally brilliant wife). If we do win HQ or any other prize, do we have to pay taxes?

The answer of course is, you bet (no pun intended).

Prize money, whether from trivia, a raffle, the lottery, or anywhere else, is taxed as ordinary income. According the the IRS, prize winnings even as low as $50 must be declared as taxable income.

How much tax do I have to pay?

How much tax you pay will depend on your tax bracket, and your prize winnings could put you into a higher one. And when I say taxes, I mean federal, state, and local income tax.

What if I win the Showcase Showdown on The Price is Right?

If you win a non-cash prize, like a vacation or a car, the monetary value attached to the prize is still considered taxable income by the IRS. If you win a non-cash prize, be sure you know the monetary value of the prize you are receiving.

When is a prize not a prize? When you win a prize that isn’t money and you end up owing more taxes than you can afford. You may be able to sell the item to pay the taxes (and keep the profit), but if you can’t sell it and you can’t pay the taxes, you could face some stiff penalties from the IRS.

What if Oprah gives me a car? Do I still have to pay taxes?

What if you win a prize, but never signed up for a contest? Remember when Oprah gave everyone in her audience a car? Or Ellen gave $1 million to her audience?

Guess what? It’s still taxable income.

So what if I can’t (or don’t want to) pay taxes on a prize? What can I do?

You can gift all or a certain amount of a prize and claim an exemption on your tax return. But don’t forget, you will still be responsible for paying taxes on the prize.

Make me jealous–have you ever won a big prize? Leave a comment or send me an e-mail.

Copyright © 2018 by Siobhán Fitzpatrick Kratovil. All Rights Reserved.

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