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Money November 2013

Dollar Sense

Who Wants to Win Big on a Game Show? Are You Sure?

By Teresa Ambord

After the show, still excited from her big win, she was whisked backstage to sign the paperwork. Imagine how her excitement waned when she was also presented with the tax bill, some of which had to be paid right then and there.

If you’re an ace at guessing prices, you may be a fan of game shows which give away prizes, like the grand poobah of merchandise give-aways, “The Price is Right” (TPIR). Maybe you’ve dreamed of being a guest and winning tens of thousands of dollars in free cars, trips, and other goodies. Before you do, ask yourself this… can you really afford free? The prizes are indeed without cost, but they are also taxable.

And some of that tax has to be paid before you leave the show.


The Price is Right (Free) but the Tax is All Wrong (Not so Free)

Take Andrea Schwartz for example. Last year she won the coveted Showcase Showdown on TPIR. Her haul was valued at $33,000 and included a pool table, a shuffleboard table, and a shiny red Mazda 2.

After the show, still excited from her big win, she was whisked backstage to sign the paperwork. Imagine how her excitement waned when she was also presented with the tax bill, some of which had to be paid right then and there.

There are generally always taxes to pay on a win. But for shows filed in California, like TPIR, the Golden State requires winners to pay part of the taxes immediately. For Schwartz this meant forking over $2,500 (only a small part of the total she would pay before it was all over).

In an interview with Yahoo! Shine, she told reporters, "Yeah, you don't just drive off the back lot with the car. After the show, you fill out some paperwork and basically sign your life away. You say that you're going to pay the taxes on it. If you win in California, you have to actually pay the California state income tax ahead of time."

Schwartz had also won $1,200 in cash playing Plinko on the show. That was exciting, but in the end, she gave the money up to help cover the tax bill.


That’s Not All

When it does come time to file your tax return for the year, there will be additional forms to fill out, and the value of the prizes will be added to your income. If the prize is big, it could push you into a higher marginal tax bracket for part of those winnings.

The American Institute of Certified Public Accountants told an ABC News reporter that contestants generally have to file a tax return in the state where the prizes were won – as Schwartz said – and then file again in their home state if their state charges personal income tax. They do get to claim a tax credit in their home state for the taxes paid elsewhere, so that helps somewhat.

On “The Price is Right” (and possibly other shows which give away merchandise and trips), the value of the prizes you pay tax on – for example, on the Mazda2 won by Schwartz – isn't the same as what it might be if you walked into a dealership and negotiated a deal. Winners on “The Price is Right” pay tax on the manufacturer's suggested retail price (MSRP), which is generally much higher.

Schwartz paid the full tax on the MSRP of the pool table and shuffleboard, valued at $14,000. Because she lives in an apartment which is too small for those items, she ended up selling them on Craigslist for $4,500. But… what the heck. The money helped pay for the other taxes she owed to her home state and the IRS.

She also wanted would-be winners to know, TPIR will only ship your prizes directly to your home. If you want to have an item shipped to an alternate address, as she did for the two tables, you must pay that cost too.

Another TPIR winner told Consumerist, "I won $57,069 worth of items. I had to pay around $17,000 or $20,000 in taxes, but I'm not 100 percent on that, I tried not to pay attention."

He and Schwartz both affirm that many contestants end up declining their prizes because of taxes or for other reasons.


Can You Ask for the Cash Value Instead of the Prize?

This is a question many people ask. But the answer is, not generally, unless there's a problem with the prize. For example, the man who won merchandise worth $57,069 was told one of his prizes wouldn't be available for shipping for quite some time, so he was offered cash and took it.

The bottom line is, glitz isn't always what it appears. Contestants are often disappointed at the net value after the tax man has taken his share. Such is our tax system, but overall, they still win . . . something.

As glamorous as the win may be, if you aren’t prepared to pay the taxes and to have large prizes shipped directly to your home –  you might want to let the next guy be the lucky winner.


Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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