What is my tax liability on this prize???

Question

Please respond only if you really know the answer.Thank you.

I recently won a trip for myself, 12 students and another adult chaperone. The value of the trip is $24,000 total. It is broken down as each student is allowed to go on a tour worth $2,000 each (12 x 2000 = 24000). The chaperone and myself travel for free with these 12 students.
My questions are:
1) Am I responsible for the taxes on the total value of the trip since I was the one who's name was picked in the drawing?
2) Is the other chaperone responsible for any taxes since their trip is free?
3) Would each student be responsible for claiming their portion of the tour - $2000 each?

I live and pay taxes in the United States only.
Thanks for any help you can give.

Answer 1

Wow, how exciting that you won that prize!
Usually when you win a prize the company will have you fill out paperwork. This paperwork will include your name, SSN, etc. When you won the prize was everything awarded to you? If yes, you should receive a 1099-MISC (this is sent to you if you receive over $600). The company you won the trip from may not take any tax out, so you may want to make an estimated tax payment. This prize (as is the case with any prize no matter what the dollar amount is) needs to be on your tax return along with all other income.
At this point you may want to get more info from the company as to what will be reported to the IRS under your SSN. Once you have this information you should consult with an EA or CPA in order to help determine where you should go from here.
If you are the prize winner (and information is not requested for anyone else) then you will be responsible for the taxes.

Answer 2

mlongmuir has a good answer.

$24,000 x 15%-28% = $3,600 - $6,720 in federal tax plus state tax.

You are on the hook for it.

But I have some questions you need to ask. Why students?

Did the French Club at ABC Highschool win it? Is this part of an education grant from a Tax exempt organization?

FYI if it is fully taxable to you then split the tax between all of those that go Tax due / 14 people.

A good tax advisor can estimate the amount of tax that would be due based on current year rates. Get the cash as a condition of each person going. $480 or so for a $2,000 trip is CHEAP.

Answer 3

1)Ignore the student portion; you are tax on the full 24,000.00. The IRS only care about how the winning of $24,000.00 is tax and not on who you give that winning to.

And the tax will depends on how much you make a year. If you want to be safe just take 10% of the total winning as federal tax. I’m not sure if you have any state tax. 41 states have some kind of income tax. You should get a 1099 at the end of the year I would ask to have withholding done for you if possible.

Answer 4

Don't ask someone at H&R Block. This question is way outside their area. You'll probably get a 1099 of some sort at the end of the year, but that's way too late. You could ask the contest sponsors how the 1099 will be handled - that might give you some clue, but is still not definitive.

And don't take any answer you get here as necessarily correct. I've seen an awful lot of wrong answers here, in the taxes category.

Unless you are willing to take a chance that you could be liable for taxes on the whole amount (I don't think that would be the case, but it might be) call the IRS help line and ask them. Be aware you might be on hold for quite awhile (was over half an hour last time I called them a few weeks ago) and you might get shuffled from one person to another while they look for the right person to answer your question, since it's a complex and unusual one.

Good luck, and congratulations on your prize.

Answer 5

Since you and you alone won the trip you are liable. This should have been stated in the rules of the trip when you accepted the winnings. You should get an accountant to help you during tax time though.

Answer 6

Try calling H+R Block or visit the IRS Web site to find out. Congratulations on winning your trip.