What is the tax due (percentage to be sent to IRS) on a cash prize winning from a sweepstakes?

Question

I need to know what is the percentage of tax due on a cash prize winning from a sweepstakes. I looked on the IRS website and it said that taxes were only due on cash winnings of $5,000 or more. Is this true? Is tax not due on any winnings less than $5,000?

Answer 1

The federal government taxes prizes just like any ordinary income. You don't have to pay Social Security tax or Medicare tax, but when you fill out your 1040, you will add the total winnings to line 21 which adds to your Gross Income. You will be taxed on it as if you had that much more income on box 1 of your W-2. The same holds true if you won a non-cash prize. You have to take the fair market value of the prize and add it to line 21. State tax laws vary, so consult your local state tax code for more details. Most states that tax income usually do not tax their state’s lottery winnings.

If the organization paying out the lottery isn't withholding federal taxes for you, you could be in for a big surprise when you do your tax return in April. You may not only owe a lot of tax, but you may also owe penalties and interest. You may have to make an estimated tax payment to the IRS to avoid these penalties. If the amount or your winnings is relatively small, or if they withhold taxes for you, I wouldn't worry about making an estimated payment.

I'd love to know where on the IRS web site it said the winner of the lottery doesn’t have to report the winnings on their tax return. It is very unlike the IRS to do something like that. Publication 17 specifically says:

"Lotteries and raffles. Winnings from lotteries and raffles are gambling winnings. In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses, and other noncash prizes."

It says nothing about the prize being too small. The giver of the prize may not have to report it to the IRS, nor are they required to withhold taxes from you if the prize is below a certain amount. However, that doesn't mean that the recipient of the prize doesn't have to report it on their income tax return. Just because people don't report small winnings (scratch-offs, bingo, etc.) doesn't mean it is legal to do.

One more thing, you can offset gambling winnings with gambling losses. The winnings are reported on line 21 of your 1040 and the losses are reported on Schedule A. The losses reported on Schedule A can not exceed the winnings reported on Line 21....so save proof of all gambling losses to help offset your gambling (lottery) winnings.

Hope this helps :)

Answer 2

The entire amount of your winnings is taxable as ordinary income. The actual amount will depend upon your tax bracket. The $5,000.00 rule applies to tax withholdings on certain types of winnings but does not affect the actual tax payable.

Most taxpayers are in either the 15% or 28% tax bracket. If your winnings are substantial, it could go higher than that though.

Answer 3

Better to get a determination from the IRS directly. REmember some States will take some of that money in State income taxes.

Answer 4

Prize winnings are taxed the same as bonus tax in most states, which is 40%.

Answer 5

It's taxed as ordinary income, just like a salary.

Answer 6

there is no rule of thumb-there is a tax on everything. you were on the IRS site and did not look up whether or not less than $5,000 is taxable?

Answer 7

I know someone who won $100,000.00 and after taxes they brought home $66,000.00. So they too a little more than 1/3 in taxes.

Answer 8

talk to your accountant for exact amount but the general rule for large sums let's say a million dollars or more is about 40%.