A New Twist on Your Favorite Game Show Can Be Very Taxing
We all have our favorite game shows such as Wheel of Fortune, The Price is Right, and Lets Make A Deal and we love to have the contestants win big. Often the game show hosts will ask â€śwhat you are going to do with the winnings?â€ť The answer is usually â€śbuy this or thatâ€ť or maybe â€śgo on vacation.â€ť
We seldom if ever hear a contestant or the host mention anything about giving the government part of their winnings. But after all the celebrating is over, the game show will issue the winning contestant a 1099 for the amount of the cash and fair market value of the prizes won, which is taxable on the contestantâ€™s state and federal tax returns.
If a contestant wins cash they just need to set aside enough of the cash winnings to pay their taxes! The amount of the tax will vary by individual based on their tax bracket and the state they live in. The federal tax can be as high as 39.6% and some statesâ€™ as high as 13%. Most individuals who are contestants on these programs are probably in the 10-25% federal tax brackets and 2-5% state brackets, making the tax on the winnings around 22%.
But what happens to the contestant that wins a prize? They will be taxed on its fair market value, which is usually full retail value. So they will have to dig into their own pockets to come up with the cash to pay the taxes. And if the contestant wins something they have no use for, they are still stuck with taxes unless they refuse the prize or contribute it to charity. Then think about the individual with limited means that wins an $80,000 vehicle. It might well cost them $17,500 or more (which they probably donâ€™t have) just to pay the income taxes on the prize. Or consider the contestant that wins a bunch of expensive trips and will have to dig into their pocket to pay cash for them. Do they even have enough vacation time to take them?
Thinking about how the contestant will deal with taxes can add a new twist to watching your favorite game show. Call us if you have questions.
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