Money for nothing.

April 14, 2009 7:40 AM

Tax Filter: Do I need to report winnings from a contest? If so, how?

I received a cash prize of $5,000 in a contest. I was required to fill out a W-9, but I don't think I received a 1099-MISC (or anything else) for the prize amount. This was not a sweepstakes or a contest of chance or anything like that, but more of a "reward"; a recognition check of sorts.

How do I account for this? Straight up "other income"? Or do I need to at all, in the absence of the 1099? (My spidey sense tells me that even in the absence of a report from the other company, it's still my responsibility to report all income, right?)

I'm aware you're not my accountant, and this is not legal advice, etc, and that simply not reporting the income is almost certainly not an option (though I have to admit, it shifts my burden from owing $1,300 to getting a refund of $600, which is, well, mighty tempting.)

How does it work from the IRS side? If the company that gave me the check reports it, the IRS looks for it to be reported back properly on the other side, based on my social? And an omission of that income on my side will likely result in an audit?

Moreover, if someone legitimately forgot to include this income, (which I'm *not* proposing to do, but could EASILY see happening, as I won this at the beginning of the year and didn't receive anything since then) is it just automatic audit ahoy?

(Other pertinent info: In the US, if that weren't fully obvious, earned in the $40-$50k range, filing single, no dependents, otherwise unremarkable return.)

posted by anonymous to work & money (6 comments total)

I had a similar issue a few years ago. I had a friend who was an accountant and tax auditor for the state do my return, and she filed my winnings as "hobby income". I don't know whether it was correct or not, but it made me feel good for reporting it.
posted by Happydaz at 7:51 AM on April 14

"Prizes and awards" is specifically one of the categories the IRS instructs you to report in line 21 of the 1040 (see p. 28). See also p. 34 of Publication 525, which gives "a $50 prize in a photography contest" (i.e., not a contest of chance) as an example of a prize which should be reported on line 21. Note also there, "If you win a prize... you must include it in your income." (Not "If you receive a 1099-MISC for a prize, you must include it in your income.")

Although you should have received a copy of a 1099-MISC and that's a mistake on the part of the contest organizers. From the 1099-MISC instructions, "File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year:... At least $600 in... prizes and awards...." And also "If you are required to file Form 1099-MISC, you must provide a statement to the recipient." Hard to know whether they didn't file the form with the IRS either, or if they did but didn't send you a copy, although the fact that they had you fill out a W-9 suggests they're at least aware of the reporting requirement.
posted by DevilsAdvocate at 8:17 AM on April 14 [1 favorite]

I'm studying to become a CPA (not one yet) and this is what I have found:

Tax regulation 1.74-1 deals with prizes and awards. This is paraphrasing, but items that must be included in gross income include: prizes from radio and tv shows, door prizes, contests of all types, etc. Exclusions are allowable if they are based on past achievements in religion, charity, science, etc, you did not take action to enter the contest, and if you don't have to do perform any services in the future (ie, Nobel, Pulitzer).

Hobby income is, like gambling income, only deductible to the extent of your losses. For example, if you make flower pots as a hobby and sold some, making $100 dollars income for the year, but it cost you $200 to make them. You can deduct up to $100 dollars of that expense to have a net income of $0.

I know that was a bit jargon heavy, but that's the general ideas. Any income after your first $32,000 in income is taxed at 25%. In terms of audit risk, the gov't has 3 years from the due date of the return or when it is filed, whichever is later, to assess additional taxes. However, there is no limitation for a fraudulent or false return.

I have no idea about the IRS. I don't know if the contest reported it, I don't know if they would chase you down over $5000. The above facts are federal information, your state may be different.

Hope this helps a bit! And oh, just because information doesn't die and I'm typing this at work--

"This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties."
posted by CPAGirl at 8:36 AM on April 14

IANATaxAnything, but a $1900 swing seems high to me (from -600 to 1300?). That's 38% of your winnings. If you do report it (and I think you should, as others have said), you might want to double check your math
posted by chndrcks at 9:11 AM on April 14

That's 38% of your winnings.

Yep. Sucks.

I am not an accountant, but I run an awards program and thus I give out several hundred recognition awards each year.

We moved from award checks to reimbursements for just this reason -- we had to 1099 our awardees and they were supposed to report the $1000-$2000 checks as award/prize income.
posted by desuetude at 9:44 AM on April 14

If you filled out a W-9, the IRS almost certainly knows about these winnings, and they will catch up with you eventually.

It's possible that the awarding organization, which seems to have been too incompetent to send you a 1099-MISC as they should have done, might also have been too incompetent to file the W-9.

But I wouldn't want to take a chance on it myself.
posted by Sidhedevil at 12:00 PM on April 14