Someone just won $30 million in the California SuperLotto Plus. It wasn’t me. Hey, we can all dream, right?
Playing the lottery isn’t the only way to try your luck and make it big these days. With the proliferation of game shows, reality shows, Internet games, and sweepstakes, you might be closer to having your own “prize-winning day” someday.
After the elation—the jumping and screaming, the celebrating and leaping, the gamboling and shrieking—dies down, it’s time to look at the tax side of the win, and what you’ll owe Uncle Sam. Equifax blogger and tax expert Eva Rosenberg shares some advice about the financial implications of winning the lottery or game show prizes.
Taxes On Lottery Winnings
First things first: You need to report the winnings on line 21, “Other income,” on Form 1040 and on the related state tax form.
Typically, states with lotteries, or shares in multistate lotteries, don’t tax your winnings. Naturally, the IRS taxes you on all wins—at your highest tax rate (28–35 percent).
You can receive lottery payouts in a lump sum or over several years. Good money managers should take the lump sum and invest the money. Folks whose money somehow manages to trickle away should opt for annual payments.
A few things to keep in mind: If you get all the money at once, it tends to disappear rapidly—going to federal taxes, old debts, new relatives, new best friends, and luxurious indulgences. An article published a few years ago in Milwaukee Magazine called “Lottery Hell” outlined the bad things that have happened to winners. If you take the money over several years, even if you squander it in the early years, you’ll have it replenished each year. You can start afresh.
Taxes on Game Show Winnings and the Like
A lot of TV shows are giving away prizes. You don’t even have to be on the show to win. You could simply be a member of the studio audience (both Oprah and Ellen DeGeneres give prizes to their audiences). You could even be a member of the show’s club, watching from home. On the Wheel of Fortune, you could win as much as $50,000 if you have a Sony card.
When you’re in the studio audience, you must pay taxes on the fair market value (or list price) of the prize or gift to the state where the show is filmed, to the IRS, and to your own state, if you live in a different state.
Want to reduce the tax bite of your winnings? Check out the full blog post for more information on how to reduce the taxes you'll pay on winnings: http://tax.equifax.com/2010/11/winner-winner-winner-tax-implications.html
Have you ever won the lottery or a game show prize? What did you do with the money?
Ilyce Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com, The Equifax Personal Finance Blog and CBS Moneywatch She is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.