What Is the Tax Rate on Game Show Winnings?

Game show winnings, whether received as cash or prizes, are considered taxable income by the Internal Revenue Service (IRS). This income is subject to federal income tax, and in many cases, state and local income taxes. The IRS views these winnings as ordinary income, meaning they are taxed similarly to wages, salaries, or other forms of compensation.

Federal Income Tax on Winnings

Game show winnings are subject to federal income tax at ordinary income tax rates, which are progressive. This means that as taxable income increases, higher portions of that income may be taxed at higher rates. The specific tax bracket applicable to a winner’s income depends on their overall taxable income for the year, including the game show winnings, and their filing status.

For certain gambling winnings, which include game show prizes, the payer is required to withhold federal income tax if the winnings exceed specific thresholds. If the winnings from a game show are $5,000 or more, the payer must withhold federal income tax at a flat rate of 24%. This withholding requirement applies regardless of whether the winnings are paid in cash or non-cash prizes.

This 24% is a withholding amount, not necessarily the final tax rate on the winnings. The actual federal income tax owed will be calculated when the winner files their annual income tax return. If the winner’s marginal tax rate is lower than 24%, they may receive a refund for the excess withholding; if it is higher, they will owe additional tax.

State and Local Income Tax Considerations

Game show winnings may also be subject to state and sometimes local income taxes. State income tax laws vary significantly across the United States, with some jurisdictions imposing no income tax, while others have progressive tax structures similar to the federal system. Winners need to consider both the state where the game show was taped and their state of residence.

Many states levy income tax on winnings earned within their borders, regardless of where the winner resides. The winner’s state of residence may also tax the income, even if it was earned elsewhere. To prevent double taxation, many states offer tax credits for taxes paid to another state on the same income. This credit can offset the tax liability in the winner’s home state.

Some states do not impose a state income tax on any earnings, including game show winnings. Conversely, other states have high income tax rates that could significantly reduce the net value of a prize.

Reporting Your Winnings

The process of reporting game show winnings to the IRS begins with the game show producer. If your winnings meet certain thresholds, the producer is required to issue you IRS Form W-2G, “Certain Gambling Winnings.” This form is issued for winnings of $600 or more, or $5,000 or more from certain gambling activities like sweepstakes, wagering pools, or lotteries, which often applies to game show prizes.

Form W-2G provides important details, including the amount of your winnings and any federal income tax withheld by the payer. You should receive this form by January 31 of the year following the year you won the prize. You will use the information on Form W-2G to accurately report your income when filing your federal income tax return.

Even if you do not receive a Form W-2G, perhaps because your winnings did not meet the reporting thresholds, you are still legally obligated to report all income on your federal income tax return. All game show winnings, regardless of the amount or whether a W-2G was issued, must be included as “Other Income” on Schedule 1 (Form 1040), “Additional Income and Adjustments to Income.” Failing to report all taxable income can lead to penalties and interest charges from the IRS.

Taxation of Non-Cash Prizes

Winning a non-cash prize on a game show, such as a new car, a vacation, or valuable merchandise, also creates a taxable event. The fair market value (FMV) of the prize is considered taxable income. The game show producer determines this fair market value, which represents what the prize would sell for on the open market. This FMV is the amount that will be reported to the IRS and on any Form W-2G issued to you.

A unique challenge with non-cash prizes is that the winner receives an asset rather than cash. This means the winner does not have immediate funds available to pay the taxes owed on the prize’s value. Winners might need to use personal savings, take out a loan, or even sell a portion or all of the prize to cover the tax liability.

Some game shows may offer a cash equivalent option instead of the physical prize, which can simplify the tax payment process. If a cash option is not available, winners must plan how to meet their tax obligations. Understanding the tax implications of non-cash prizes beforehand can help winners prepare for the financial responsibilities that come with their winnings.