Casual gamblers are only able to deduct wagers up to the amount of their winnings. This means gamblers who won $500 in a year but spent $2,000 in wagers would only be able to deduct $500. The Internal Revenue Service requires that lottery officials must withhold taxes from your winnings at the rate of 24% if you win $5,000 or more after subtracting the cost of your ticket. 1 This doesn’t necessarily mean you’ll owe 24% when all is said and done, however. All gambling winnings are taxable income—that is, income subject to both federal and state income taxes (except for the seven states that have no income taxes). It makes no difference how you earn your winnings-whether at a casino, gambling website, church raffle, or your friendly neighborhood poker game.
- How Much Are Gambling Winnings Taxed In California Today
- How Much Are Gambling Winnings Taxed In California Unemployment
- How Much Are Gambling Winnings Taxed In California Tax
- How Much Are Gambling Winnings Taxed In California State
- How Much Are Lottery Winnings Taxed In California
The information in this article is up to date through tax year 2019 (taxes filed in 2020). If you won the lottery, congratulations! You have 60 days to decide if you will take a lump-sum payment, which is one check for the single amount after federal taxes have been withheld, or an annuity, which is smaller annual payments that equal the total winnings.
Although the winnings from a game show can change a lucky winner’s life instantly, their after-winning-life might not be as splendid and impressive as most of us think.
I always had the dream of making an appearance on game shows such as The Price is Right, Wheel of Fortune, and Let’s Make a Deal. The truth is, game show winnings are always a two-sided coin and often a suckers bet in my opinion.
While you’ll have magnificent on-air memories to perhaps cherish for years, you’ll also be taken to the terrible secrets of game show winnings: The burden of having to pay taxes on your winnings.
It’s something that you’ll never hear a game show’s host mention on TV, but you can always count on, that the IRS will always come for their share!
For this reason, let’s look at some issues revolving around paying taxes on game show winnings, whether it’s a new car, thousands of dollars in cash, or a fully-paid vacation to the Bahamas (which reminds me, I need a vacation.)
Are Game Show Winnings Taxed?
Yes, In the United States, winners have to pay game show prize taxes. This is basically because the government views game show winnings as taxable income. It doesn’t matter whether the prize is in liquid cash or non-monetary, the winners are required to pay taxes on prizes won.
Most viewers often assume that the winner is often given their money or prizes right away after the show. If only it were that easy!
I laugh at how deceptive this actually is
Check out this article about Andrea Schwartz who won big prizes on one of my all time favorite game-shows The Price Is Right. Winning ‘The Price Is Right’ Is Great, Until You Get The Tax Bill
Here’s a quick summary of the article:After winning any game show or contest, you’ll sign some paperwork and agree that you’re going to pay taxes on the prizes. When it’s all said and done, the winner will most definitely get a 1099-MISC tax form from the show’s organizers, who are also obligated to send a copy to the IRS. And even if they do not provide you with the 1099 tax form, you still have to report the value of the winnings. Failure to do so can result in huge penalties!
How Much Will You Be Taxed?
The amount of tax you’ll pay on game show winnings depends on where you live and how much you win. You’ll have to pay federal taxes, as well as state taxes. If you, however, live in states that do not have income taxes such as Washington, Nevada, Texas, Alaska, Florida, South Dakota, and Wyoming, you may not have to pay state taxes on your game show winnings.
You’ll still owe Uncle Sam though (The U.S. Federal Government.)
Just like in lottery winnings, depending on your tax bracket, the IRS often expects you to pay a top rate tax of 37% on the gross value of the prize won, and this is on Federal tax alone! So suppose you won $10 million on a game show in the state of California where I live, you’ll have to pay a state income tax of about 12.3% plus the federal income tax of 37%.
YOU COULD END UP PAYING NEARLY HALF OF YOUR WINNINGS IN TAXES!
Can You Avoid Paying Game Show Prize Taxes?
There are a few occasions when you can avoid paying game show prize taxes. For instance, game show winnings and other 1099 based income that are worth below $600 are not taxed by the IRS.
Another way to avoid paying game show prize taxes is by offering the winnings as gifts to friends and family members. Even though this means that you won’t keep the winnings for yourself, it’s a way to avoid the tax burden.
Either way, you need to speak with a Financial Advisor to understand how much and how to properly report on that year’s tax return!
Better To Win Cash Than A Car Or Vacation
Recently I had a conversation my CPA about whether someone is better winning cash or an actual prize. What I learned was, it depends. But most of the time, you’re probably better off taking the cash. If you win cash, you can simply set aside a portion of your winnings to cover the tax.
If you win a non-cash prize it can be quite a burden since you’ll have to pay taxes based on the value of your winnings. And the value can be highly subjective. For example, you could win a car and they say it’s worth 40,000 dollars, but, you could buy the same car on a weekend close-out sale from your local dealer for 35k.
Wheel of Fortune is famous for giving cash prizes and vacation trips. The value of those trips will be counted as income for you, I recently read an article on MarketWatch which tells exactly what can happen.
Matt McMahan who won cash and prizes worth $16,400 and two vacation trips valued at $15,300.
The IRS not only taxed his cash and prizes winnings, but he had to pay tax on the two vacations. Fortunately, most shows do offer cash prizes in place of the trips, so you should consider going for the cash. Especially if you have to raise cash to pay for the taxes on the actual prize. Is it really free then? I’d take the cash and book my own vacation with as many discount deals as possible.
If You Do Ever Get Lucky And Win Remember…
How Much Are Gambling Winnings Taxed In California Today
- Consider paying the applicable or estimated taxes on any prize as soon as you win.
- Always know the exact value of your winnings. Show organizers may inflate the value to entice more participants or to reduce their tax obligations.
- Always consider going for cash instead of non-cash prizes such as a vacation.
- Do not be afraid to turn down any winnings if they may become a tax burden.
Remember, to cover yourself, always seek out professional help for your tax planning etc.
Have you won any game show prizes before? If so, I hope these tips can help you out.
More Articles
All you need is a dollar and a dream. That slogan basically sums up the Cali Lotto. If you win big and achieve your dream, keep in mind that a percentage of the money will go to taxes. While California is a relatively high tax state, there’s an exception for CA Lottery winners.
Tip
You can typically expect to pay the highest federal tax rate of 37 percent on your lottery jackpot winnings.
Super Lotto and More
Whether you’ve won the Super Lotto, Mega Millions or Powerball lotteries, the way the jackpots are paid are the same. Each major prize is paid in 30 graduated annual installments by default. California does not charge state tax on these winnings, and there are no local taxes, but federal taxes are withheld from the annuity checks. Keep in mind that although the lottery winnings are not subject to California state tax per se, winners may find themselves liable for local and state taxes based on their overall annual income.
There is an exception to the general rule that lottery winnings are not subject to California taxes. If you purchased your winning ticket out of state, you will have to pay California state taxes on the amount.
Lottery officials urge winners to obtain legal advice and consult a tax professional after claiming their prize. By law, the name of Cali Lottery winners is public information, so you may find yourself with a lot of new best friends. The winnings will change your life irrevocably, so make sure you seek out sound financial management.
Winner’s Payment Choices
Lottery winners don’t have to settle for the annual payment. They can decide to take the cash option, which is less than the jackpot amount. That’s because the jackpot amount is based on the state government investing the money and the winner receiving the annual annuity. At the end of 30 years, the amount will equal the announced jackpot.
If you’re concerned that you may not live another 30 years, that’s not necessarily a reason to choose the cash option. If the winner dies, their estate should contact the CA Lottery so that annual payments are made to the winner’s beneficiaries.
You can designate beneficiaries beforehand by filling out the Lottery Beneficiary Designation obtained from the lottery’s prize payment annuity desk. You can change beneficiaries at any time simply by filling out another form. Winners who do not fill out such forms will have their payments made to beneficiaries either by court order or via established lottery procedures.
How Much Are Gambling Winnings Taxed In California Unemployment
Federal Taxes on Lottery Winnings
If you win big in 2018, the federal tax bite is a little less than in previous years because of the Tax Cuts and Jobs Act, signed into law by President Donald J. Trump on Dec. 22, 2017. It lowers the highest tax bracket, which you are probably now in, to 37 percent.
Since CA Lottery withholds 25 percent of the winnings for U.S. citizens and resident aliens who provide a social security number (28 percent of the winnings for U.S. citizens and resident aliens who do not provide a social security number) for the IRS, you’ll have to pay the remaining 12 percent (or 9 percent if you don't provide a social security number) at tax time.
How Much Are Gambling Winnings Taxed In California Tax
Report your lottery winnings from Form W-2G as 'other income' on Line 21 of Schedule 1 (1040), including any winnings that are not reported on W-2G. If you have no adjustments to income on Line 36 of Schedule 1, transfer the total on Line 22 (which includes your lottery winnings on Line 21) to Line 6 of Form 1040.
The IRS should mail all big winners of lotteries the Form W-2G by Jan. 31, 2019.
How Much Are Gambling Winnings Taxed In California State
- Adam Gault/Digital Vision/Getty Images
How Much Are Lottery Winnings Taxed In California
Read More: