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Paying Taxes on Sweepstakes Winnings
Posted By Jim On 04/02/2012 @ 7:15 am In Personal Finance | 6 Comments
Did you win a sweepstakes or some other raffle? Technically, your winnings are taxable. In theory, it’s no different than the lottery, except the dollar amounts, in most cases, are much smaller. In fact, it’s really not that much different from winning hands of blackjack (taxes on gambling winnings  are similar, they are simply reported using a different form), thought chances are your odds at blackjack are probably better than any sweepstakes you’ll enter!
So, how do you pay taxes on sweepstakes winnings?
One of the most widely played sweepstakes is the McDonald’s Monopoly game  every fall. You enter by purchasing specially marked food items or requesting playing pieces from McDonald’s and you have a chance to win every single time. If you win a significant prize, expect to receive a 1099-MISC sometime in February of the next year. The 1099-MISC will list the prize value of the item you won.
The next step is to compare actual retail value, listed on the 1099-MISC, against the fair market value of what you won. You owe taxes on the fair market value of the item you received, not the actual retail value listed by the sponsor. You can get the fair market value by looking up how much the item may cost if you were to buy it brand new.
You enter all this information on your Form 1040  on line 21, Other Income. While you will not receive a 1099-MISC unless you win something valued greater than $600, you are legally required to report the winnings as Other Income.
In terms of tax rates, the income is taxed as ordinary income and subject to the same tax brackets  as income you derive from your job. There isn’t a higher “sweepstakes tax rate” or anything like that (for large winnings subject to withholding, they may withhold at the highest tax bracket but that may not be your actual tax rate).
So, if you won a free sandwich or fries from McDonald’s, you should be reporting it on your taxes!
(Photo: sundazed )
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 taxes on gambling winnings: http://www.bargaineering.com/articles/paying-taxes-gambling-winnings-crazy-super-bowl-bets.html
 McDonald’s Monopoly game: http://www.bargaineering.com/articles/how-to-win-mcdonalds-monopoly-game.html
 Form 1040: http://www.bargaineering.com/articles/tax-form-1040-1040a-1040ez.html
 tax brackets: http://www.bargaineering.com/articles/federal-income-irs-tax-brackets.html
 sundazed: http://www.flickr.com/photos/sundazed/2936777806/sizes/m/
Thank you for reading!