Estimates Tax on Competition prize winnings?

Question

My husband won $6000 from a competition that he was in back in March. He got paid in April we have saved the money that is supposed to be taxed, and we are going to pay it in April when we thought that it was due....should we have paid Estimated Taxes on it in the quarter that it was due? We did not know anything about this this esitimated tax...and just thought that it was normal for us to pay it at the end of the year. I have been looking and it appears that we have been wrong and that we should of paid it back then. What should we expect now, and what should we do?

Answer 1

You have 3 options for avoiding a Federal tax penalty and interest:

1) Check to see if your current year payments/withholdings are at least as much as your total tax that was reported on your 2005 tax return (you must pay in 110% of last years tax if your adjusted gross income was above 150,000). If you have done that, then there will be no penalty.

2) If you have paid in at least 90% of the current year tax, then there also will be no penalty or interest charged.

3) If you owe less than $1,000 with your 2006 tax return, there will be no penalites or interest.

As long as you meet one of the 3 options above, you are in the clear and there is no need to pay estimated taxes.

Hope that clarifies things.

Answer 2

You shouldn't owe interest & penalty if you owe less than $1,000 at the end of the year (assuming you are an average taxpayer).

If you think adding the $6,000 to your return this year will cause you to owe more than $1,000 you should have sent in an estimate. Send a 9/15 estimate form now to minimize interest/penalty. (www.irs.gov Form 1040ES)

However, did you get a refund last year? If so & your income & withholding (other than the $6,000) is relatively the same, maybe your refund will cover enough of the balance due to avoid interest/penalty.

Answer 3

The payer should provide you with a 1099 MISC by February 28th of the year after the year in which you won the prize. Where you report the income depends on which box the payer uses to report the payment. For example, if the $2500 is in Box 3 the income would be reported as ordinary income on line 21 of your 1040 form, Write the word "prize" on the blank space to the left of the money column. If the payment was placed in box 3 you would need to report it on a schedule 3 which would flow through to line 12 of the 1040 form.

Answer 4

Before you can be answered, there are a few questions.
First, get out your last year's form 1040. What is your Adjusted gross Income, at the end of page one?
Did you get a refund last year or did you pay? These questions apply to both federal and state. Because you may owe state as well. Or not..

Answer 5

you should have paid it immediately! The demoncrats want their (your) money pronto!