There’s nothing like the elation we feel when we win! And that feeling can be intense the first time we win a sweepstakes prize.
While we certainly should relish and enjoy the rare moment, it’s important to be sober about one hard reality of winning. And that reality is paying the tax on your prize.
While we are NOT tax experts, accountants or lawyers, and this post is not legal advice and should not be taken as such, we can share a few things we’ve learned in the “school of hard knocks”.
To be clear, you need to consult with a professional tax accountant or tax lawyer for advice on your particular case. But as far as we understand it, the IRS counts sweepstakes winnings as income. So, to put it bluntly, you have to report that income and pay the tax!
Sweepstakes sponsors, while required to report to the IRS any winnings paid out in amounts of $600 or more, may not be required to “withhold” any amount for payment to the IRS. Regardless, payment of the tax on a sweepstakes prize you win is completely your responsibility.
And that reporting by sweeps sponsors of prize payments of $600 or more brings up a couple important related facts…
First, in order for the sponsor to report the winnings they pay out to you, they need from you a legal affidavit to verify who you are. And they need this affidavit before they make any payment to you. This fact is one clear indicator of the veracity of a sweepstakes and its sponsor.
Second, although the sweepstakes sponsor may only be required to report prize payouts of $600 or more, you as a tax payer are required to report all sweepstakes prizes as income, including those that are below the $600 threshold.
So, do bask in the thrill of winning. It’s a moment for you and your loved ones to celebrate!
But temper that celebration with the sober action of paying the tax man first. Do not put yourself in the miserable position of spending away the prize before paying or setting aside funds to cover the income tax!
With the horrible new social spending legislation passed by Congress and signed into law by President Biden in August of 2022, an Act that adds an additional 87,000 IRS agents to go after U.S. taxpayers and harass them with audits, don’t be surprised if they come looking for you!
So, be smart with your actions and keep yourself out of trouble.
