How Do I Report Contest Winnings on My Taxes?
Most taxpayers understand that wages, salaries and commissions must be included as income when filing taxes. However, some may not realize that contest winnings are also considered income and must be reported to the Internal Revenue Service. Generally, the IRS considers all income received in the form of property, services or money to be taxable unless specifically exempted by the U.S. tax code. As contest winnings are not common, the IRS categorizes such earnings as "other income." If you earn "other income" in a tax year, you cannot file a Form 1040A or 1040EZ but must file Form 1040.
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Instructions
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Verify the category of your winnings. The IRS considers winnings in which you had to risk money, such as in a lottery or bingo game, as gambling income. The IRS defines as "other income" prizes or awards such as from a game show. If you have gambling winnings, you will receive a Form W-2G; if you have contest winnings or "other income" you will receive a 1099-MISC.
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Save your 1099-MISC. If you have contest winnings in excess of $600, the payer will issue a 1099-MISC at the end of the year. It will list both your name and address and that of the payer, and the specific amount of your winnings will appear on line 3 as "other income." Note that while most contests do not withhold income tax payments from winnings, if any federal tax is withheld it will be listed on line 4; any state tax withheld will appear on line 16.
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Prepare your Form 1040. Total contest winnings from line 3 of your 1099-MISC should be entered on line 21 of Form 1040. Include this amount in your total income. Enter any federal income tax withheld on line 61.
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Complete your state taxes, if required. Be aware that although individual tax rules vary from state to state, states with an income tax generally consider contest winnings taxable.
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Tips & Warnings
As contest winnings are often large, they can often push you into higher tax brackets. In high-tax states such as California and New York, the total federal and state tax liability can approach 50 percent of your earnings, so budget accordingly.
References
- Photo Credit money image by Petr Gnuskin from Fotolia.com
