fbpx

Learn about the legalities of Sweepstakes

T H E  L O W - D O W N

In the United States, any and all sweepstakes winners are required to pay taxes on their prizes. While we are not accountants, we have learned a lot about sweepstakes and taxes over the years that we’ve been entering and winning. We want to make sure you are prepared and doing your due diligence when and if you win in the United States. So here are the 4 most important things every sweeper needs to know about sweepstakes taxes ( if you live in the U.S.):

1. All Your Prizes are Treated Like Income, Yes, INCOME
We know, it does not not seem fair, but you should treat the value of your sweepstakes prizes as if you had been paid the amount of the prize value by an employer. Now we know that there’s a big difference between winning a fancy $10,000 vacation and having an extra $10,000 in your paycheck at the end of the month, but the IRS treats both cases similarly and that is important to know.

It’s worthwhile considering whether you’re willing and able to pay the taxes on the prizes before you enter sweepstakes. For instance, if you were to go on a game show on television and win a car, do you know that you are liable for the tax and license on that car? So while you might think that you won a whole car you have really won a car and a bill for tax and license. The only exception would be if in the rules it states clearly that the prize includes the “tax and license fees in the winner's state.”
For more information about how you declare your prizes, see Paying Your Sweepstakes Taxes.

2. There Is No Minimum on the Prize Value. You Need to Declare it all!

There is a huge misconception that is nothing more than a common sweepstakes myth that you don’t have to pay taxes on prizes that are valued at less than $600. We hate to tell you but that’s just not true. While sweepstakes sponsors are only required to send a 1099 form for prizes won valued at $600 or above, you as a resident of the United States are legally required to declare your prizes on your taxes, whether you receive a 1099 or not and no matter how much the prize was.

3. What about the ARV in the Sweepstakes Rules?
In any sweepstakes, you’ll see an ARV that’s listed in the rules. This is an estimate of the prize’s value and it might be different than the actual value of the prize. Just know that you are only required to pay taxes on the fair market value of the prize when you receive it.
So it is entirely possible that your prize might be worth less when you receive it than when the rules were drafted, or that the ARV doesn’t match up to the best possible price for that product. If you can find a lower advertised price for your prize, you can declare that value on your taxes! So don’t go off the stated amount. Sometimes sweepstakes run for a year and during that time, a lot can change.

4. Why You’ll Always Pay Sweepstakes Taxes to the IRS
This is one for the scam files but since it does pertain to winnings it is important to know. Sweepstakes scams tell people that they’ll receive their prize right after they pay “taxes” to the scammer. Some people might think that it’s a believable request and they pay. The confusion comes because there is a rule when it comes to gambling that you do sometimes need to pay taxes before your prize is paid out.

However, you’ve won a sweepstakes and not a gambling pot and taxes for sweepstakes work differently from gambling. You NEVER pay taxes to sweepstakes sponsors. You, as the winner, declare your prize value on your regular tax forms which you submit them to the IRS. You never need to pay money to a sponsor to release your prize, if you are asked this it is a sure clue there is something wrong. If you keep these four tips in mind when you enter sweepstakes, you can ensure that you are following the letter of the law about sweepstakes taxes. You can also got to bed at night knowing you’ve not overpaid or that you’ve fallen prey to any tax-related scams. Please remember that this is not intended to be legal advice we would like to give you the basics so that you can feel confident and enjoy your win. For information about your specific legal situation, consult with a tax advisor who is familiar with sweepstakes laws in your area.

Missed a Sweepstakes School Lesson? Catch up here now!

Facebook Comments

4 Comments

  1. Marilyn Angela Holt January 23, 2016
  2. Cynthia Mercado February 27, 2016
  3. Lon Cummings April 13, 2016
  4. layla2016 March 30, 2019

Leave a Reply