We all want to win, right? Well, there’s a little more to it than just collecting the prize. The winner is responsible for reporting all winnings as income at the end of the year. Yep, you have to pay taxes on them.
Can you Afford to Win that Prize?
I think I may have always known this, but the reality hit me when I won several sweepstakes in one year – two of them being trips. I think I had a total of $10,000 in 1099’s for the year. (Even if you don’t receive a 1099, you are still required to report.) Depending on your tax bracket, you can end up owing up to 40% or so on the value of your winnings.
Once you realize this, you might be a little more picky about what you enter to win. For example, the trips that I won… would I have spent $4,000 in total of my own money to go on either one of them if I hadn’t received them as prizes? Probably not. Remember you are required to report the whole value of the prize, so that’s the whole package – airfare, hotel, transportation, spending money… whatever they include. The value of both trips was $10,000. That means I was responsible for up to $4,000 of that in taxes.
I can’t remember what tax bracket I was in for that year and I don’t know much about tax brackets (check with your accountant). It probably wasn’t 40%, but you see what I mean. Plus, I always have a lot of deductions. But, if you are out of work, or don’t have many dependents or deductions, you might end up owing the government. Just something to keep in mind.
I am not trying to deter anyone from entering. This is just something that is good to know. If you win that huge dream home or super pricy vehicle, are you going to be able to pay the taxes on it? Oh, that’s another thing – if you win a car, you have to pay state taxes before you even get to drive away in that sucker.
I think most of us would like to have this problem to tackle, no? Gee, honey, how are we going to pay for our enormous dream home prize? I think I would still like to cross that bridge! 😉
Keep on winning, just keep Uncle Sam in the back of your mind.
Melissa Say What?
Thursday 28th of February 2013
Definitely wise words. I won a 7 day cruise for two, valued at $2600, but I took it and due to my tax bracket and withholding status, combined with deductions, still got money back. That's not always the case, so I am very careful with what I enter these days. Another word about trips/vacations is to be sure to read the official rules to ensure you can travel either within the selected time period or by the travel by date. Also, international travel requires a passport from the U.S. If you don't have one yet, it may not be wise to enter especially the trip requires travel to take place soon.
Russell M
Monday 25th of February 2013
One thing to remember is that you are only responsible for paying taxes on the fair market value of the prize, not the msrp, which is what is usually listed on the 1099. Do a little research on what the prize is actually selling for when you actually get it, than ask for an adjusted 1099, and report the adjusted amount to the IRS. You have to have proof for them to accept it, so keep good records. On electronics, this can be as much as a 30-40% difference is it takes a while for the prize to be shipped to you.
Jennifer
Monday 25th of February 2013
That's great advice, Russell. I have never gotten one for an electronic prize. I did get one for a diamond necklace, but didn't even think to question it. Very good to know!
Kayla @ TheEclecticElement
Monday 25th of February 2013
This is one of the thing that I'm always so paranoid about! I've tried doing my research but there are SO many conflicting things out there that it just get so confused! I do try to be picky on what I enter and try to win-I've only won two major prizes over $1,000 and was told not to worry about it.
Jennifer
Monday 25th of February 2013
Yep, that's why I don't enter to win trips anymore. Well... unless it's somewhere I really want to go! But, it ends up costing a lot in the long run. At least with a car or something you could sell it!
joni
Monday 25th of February 2013
This is a good reminder to sweepers. I stop and think about every sweep I enter for this reason.
Maegan
Monday 25th of February 2013
I have to agree with Stacie! It sure is nice not to have to worry about it. I have watched several US based sweepstake winner shows on TLC and its just crazy the amount of money they take from your winnings. You win a million dollars and you think your rich but then they take almost half of it away! SUCKS!
Jennifer
Monday 25th of February 2013
I never knew that!!! I am moving! ;)