Game Show Winnings, how much can you actually keep?

October 10, 2007 8:04 AM

How much of the winnings does a game show winner actually walk away with?

I have always wondered just how much of the winnings a person will actually walk away with. To elaborate, if a person were to win a million dollars on an American game show how much of the million could that person put in their wallet? If the winnings are something like a car or boat does the winner have to pay taxes on the retail value?

Are there ways to increase the net amount by decreasing the amount the government takes? Assuming of course that the government treats the winnings as earnings and will tax it.

For example, Could the winner donate enough to offset the taxes therefore increasing the net amount? Could the winner set up a company in which the winner is an employee of and the winnings are revenue for the company? Then the company can give “withdrawals” to the employee.

Are there any other ways to increase the net amount or are winnings considered tax-exempt?

I assume it is different in Canada then the USA, if someone could comment on the differences that would be a bonus.

Thanks!

posted by birdlips to work & money (19 comments total)

It's straight income for tax purposes. Prizes like cars are taxed at their retail value.
posted by Steven C. Den Beste at 8:12 AM on October 10, 2007

Also, for the very large cash prizes, it is not uncommon for that to be the some sort of annuity (i.e. 20 some odd yearly payments of $x). If a lump sum payment is available then they are often only going to get around half of the advertised prize (before taxes).
posted by mmascolino at 8:16 AM on October 10, 2007

All winnings over $600 in the U.S. are taxable as income. A 1099-Misc form is submitted by the contest Sponsor and the amount is added to the winner's other income and taxed at the rate for that income level. This can be especially painful if the prize amount bumps a winner up to a higher tax bracket.

There's very little you can do to minimize the tax damage. Most contest sponsors will list the Approximate Retail Value (ARV) on the 1099-Misc form, which can often be inflated from what you would actually pay on the street (because it is calculated in advance when the rules are written). For prizes involving trips, a winner should always ask the sponsor to submit a 1099-Misc for the actual cost of the trip, not the ARV which is usually based on the most expensive departure point. In the case of a trip you may also be able to split or defer the tax liability if you won the prize in one year, but take the trip in another year.

The same rules apply to businesses, so setting up a company would only help in that you might have a lower tax rate. It would be difficult though, as the business did not win the prize, the individual did. As for donation, you would still have to take the prize as income and then donate it.

Many winners turn down prizes because of the tax implications and smart contest organizers build this into their prizes (offering "spending money" so people have cash to pay the taxes).

I'm pretty sure that most game shows work in the same way, although it might change because I know for some you are actually an employee of the production company. I've heard that people used to stand outside The Price is Right and buy things off winners for cash because the IRS demanded payment almost immediately.

In Canada, there are no taxes on winnings at all.
posted by dripdripdrop at 8:22 AM on October 10, 2007

To clarify, in Canada you would be taxed on a winning if it is paid by your employer and over a certain amount. Then it's considered a taxable benefit of employment.
posted by dripdripdrop at 8:25 AM on October 10, 2007

Yep, taxable. Roughly 30%. See this article on the infamous Oprah car tax debacle.
posted by damn dirty ape at 8:30 AM on October 10, 2007

Yeah, but you have to remember the kind of prizes given out on old Canadian game shows like Definition.

The show, while popular in Canada, was also sometimes mocked for the cheapness of its prizes, which were usually small kitchen appliances, pen and pencil sets, or other small courtesy gifts. Only the show's annual championship tournaments offered the types of expensive prizes, such as a car or a resort vacation, that were commonplace on American game shows.
posted by maudlin at 8:38 AM on October 10, 2007

I wonder how the IRS values the voice of Carl Kasell on your home answering machine.
posted by grouse at 8:58 AM on October 10, 2007 [10 favorites]

When my mom worked for Price is Right, I was always stunned how I saw the same jet skis and boats and things over and over again being carted down the (really large) hallway.

Apparently, very few contestants chose to take all the prizes due to the tax liability (especially when PIR is so based on suggested retailer value), so despite their excitement, the showcase showdown would return to be trotted out again and again.
posted by Gucky at 9:07 AM on October 10, 2007 [1 favorite]

Of course, there's the infamous story of Survivor winner Richard Hatch not reporting his $1m prize to the IRS.
posted by mkultra at 9:30 AM on October 10, 2007

I wonder how the IRS values the voice of Carl Kasell on your home answering machine.

Heh - I never paid any taxes on my audiocassette of Carl!
posted by pinky at 10:47 AM on October 10, 2007

I've also wondered about the tax liability of those families who get completely furnished new (large) houses built on the Home Makeover shows. Usually the family is destitute to begin with, and I can't imagine them being saddled with such huge tax liabilities.
posted by Gungho at 10:58 AM on October 10, 2007

The home makeover shows exploit a tax loophole that suggests that home improvements made by renters while they occupy your home are not taxable -- so they pay the family some 'rent' for the week or whatever that they're there. This may not be a particularly sound bit of reasoning, and there's a lot of speculation that as soon as the government tries to force the issue, it's all going to come crashing down.
posted by jacquilynne at 11:16 AM on October 10, 2007 [1 favorite]

It could come crashing down anyway-- I'm not sure how quality construction could be accomplished in a week!
posted by lou at 11:37 AM on October 10, 2007

<derail>previous comment on quality of work done during Extreme Makeover: Home Edition</derail>
posted by lowlife at 12:14 PM on October 10, 2007

I believe in New Zealand, and possibly Australia, some shows offer tax-paid prizes. So the amount won is the amount they winner walks out with.
posted by sycophant at 2:00 PM on October 10, 2007

My understanding of the Australian situation is that prize winnings are NOT taxable unless that is your main source of income. That is, if you make a living from paying poker, you have to pay income tax on your winnings (and of course, you can claim your losses as a deduction). Otherwise, it's tax free, until whatever it is you won starts earning interest.
posted by b33j at 2:22 PM on October 10, 2007

The money is definitely taxable as income, but I was surprised (perhaps naively) that when I won 5 grand on a certain classic quiz show that I got a check for the whole thing. I guess I expected them to take deductions like an employer. It was up to me and my accountant to report it and pay the appropriate taxes.
posted by PhatLobley at 3:34 PM on October 10, 2007

I know someone who won his game and the Showcase Showdown on The Price is Right. He sold most of the physical items he won to pay the taxes on his winnings, but he and his wife did go on the trips he won.
posted by clh at 3:59 PM on October 10, 2007

Confirming some of the Australian's comments.

I won money on 'Who Wants to be a Millionaire' and was able to keep it tax free.
posted by TheOtherGuy at 4:41 PM on October 10, 2007