Q: When someone wins grand prizes on a game show, how much are they taxed?
A: I found a 2010 article by DailyFinance writer Jason Cochran dealing with this very issue. The article states the amount taxed depends on which state you live in and your income, but "it's safe to say that you'll lose nearly half" to taxes. The article offers some interesting examples and tidbits on the matter. Among them:
Richard Hatch, the first winner of "Survivor," received only $580,000 of his $1 million prize.
The show "Big Brother" brings a $500,000 prize, which places the winnings in a lower tax bracket, but the winner still only ends up with about $375,000.
In 2007, the news site RealityBlurred.com checked out payout terms of the $1 million winnings from "America's Got Talent."
The site learned the terms force the winner to choose whether to take the prize in the form of an annuity paid over 40 years or the existing cash value of that annuity.
The website figured out the annuity would pay out $25,000 a year for 40 years, but the lump sum would yield $450,426. That's $375,000 after taxes.
Typically if you win a prize, you are taxed according to its value. A "Wheel of Fortune" representative stated that you even receive a 1099 tax form. What's worse is that the prizes usually are determined under best-rate scenarios. In other words, if the game show considers a vacation's value to be $10,000, chances are you could find that same vacation available at a lower cost by shopping around.
In addition, sometimes when a prize — for example, a hotel package — is given as part or all of a contestant's winnings, the hotel donates the package to the show in exchange for the promotion it receives on the air. So, the only one who pays for it is the winning contestant, in the form of taxes.
Don't forget state taxes. "Wheel of Fortune" and "Jeopardy!" are among shows that actually deduct California taxes (the state where the shows are aired) before sending the winner a check.
Let's say you are in the studio audience of a show that's not even a game show. Remember the time when Oprah Winfrey famously gave everyone in the audience a new car? They had to pay taxes on it — as much as $7,000 each for some income brackets.
Staff Writer Bernie Delinski writes Just Ask, which runs Wednesdays in the TimesDaily. If you've got a question, e-mail it to bernie.delinski@TimesDaily.com, call him at 256-740-5739, fax it to 256-740-4717 or send it to Just Ask, c/o TimesDaily, P.O. Box 797, Florence, AL 35631.