We all have our favorite game shows such as Wheel of Fortune, The Price is Right, and Lets Make A Deal and we love to have the contestants win big. Often the game show hosts will ask “what you are going to do with the winnings?” The answer is usually “buy this or that” or maybe “go on vacation.”
We seldom if ever hear a contestant or the host mention anything about giving the government part of their winnings. But after all the celebrating is over, the game show will issue the winning contestant a 1099 for the amount of the cash and fair market value of the prizes won, which is taxable on the contestant’s state and federal tax returns.
If a contestant wins cash they just need to set aside enough of the cash winnings to pay their taxes! The amount of the tax will vary by individual based on their tax bracket and the state they live in. The federal tax can be as high as 39.6% and some states’ as high as 13%. Most individuals who are contestants on these programs are probably in the 10-25% federal tax brackets and 2-5% state brackets, making the tax on the winnings around 22%.
But what happens to the contestant that wins a prize? They will be taxed on its fair market value, which is usually full retail value. So they will have to dig into their own pockets to come up with the cash to pay the taxes. And if the contestant wins something they have no use for, they are still stuck with taxes unless they refuse the prize or contribute it to charity. Then think about the individual with limited means that wins an $80,000 vehicle. It might well cost them $17,500 or more (which they probably don’t have) just to pay the income taxes on the prize. Or consider the contestant that wins a bunch of expensive trips and will have to dig into their pocket to pay cash for them. Do they even have enough vacation time to take them?
Thinking about how the contestant will deal with taxes can add a new twist to watching your favorite game show. If you have questions, contact the Experts at Henssler Financial:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
Disclosures
The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
