'The Price Is Right' - but the Taxes Are Wrong
Oh, happy day! You're a contestant on a popular game show - "The Price Is Right," let's say. You spin the wheel, you make the winning bid, and suddenly - ka-ching! - you've won the Lexus or the dishwasher or the lifetime supply of nail clippers. Pretty swell, right?
From a tax standpoint, maybe not.
Consumerist.com gives the example of a "Price is Right" winner (name withheld) whose haul included a new truck, a washer and dryer, an Apple computer, a poker table and a trip to Washington, D.C.
On the social news site, Reddit, the man fielded questions from people wanting to know if there was any downside to winning.
There sure was: "I won $57,000-worth of items. I had to pay around $17,000 or $20,000 in taxes."
Some winners, he said, decline to take their prizes because they don't want to pay the taxes.
If winners had the option of taking cash, rather than the fridge or car, it would simplify paying Uncle Sam. But that's possible only under certain circumstances, the "Price Is Right" winner said.
"We won an Apple computer, and Apple doesn't ship their items, so we got the money," he said.
He used the cash to pay taxes on his other items.
Melissa Labant of the American Institute of Certified Public Accounts told SmartMoney that winners have to pay state and federal taxes on their prizes, just as they would on any other income.
They file a return in the state in which they won - meaning, she says, usually New York or California. Then, they claim those taxes as a credit in their home state.
But there's a catch, she said: If your home state has a lower tax rate, you won't get back the difference.
Another catch: You're paying taxes on the item's full retail value - in the case of a car, say, on the manufacturer's suggested retail price, rather than on the discounted price a buyer on the open market might pay. Win a really big prize, and the income might be enough to lift you into a higher tax bracket, further increasing the cost of your good fortune.
The "Price is Right" guy cited another reason winners sometimes say, "No thanks."
"One guy won a $10,000 cash prize and didn't take it because he didn't want to pay half to his ex-wife," he said.