Winning a lottery or other major prize in a Missouri contest is exciting, for both you and the government. Missouri withholds state and federal taxes on some prizes, and you are responsible for reporting and paying taxes on any prizes you receive. If you win a car or other property, you'll pay taxes based on the item's fair market value at the end of the year.
Withholding
As of the time of publication, Missouri withholds taxes on some lottery prizes before giving the prize to the recipient. If the winner is entitled to more than $601, Missouri must withhold state taxes of 4 percent. For example, if a winner wins $950, Missouri must withhold $38 for state taxes. Missouri must also withhold federal taxes of 25 percent on prizes greater than $5,000. Thus, if you win a prize of $8,000, Missouri must withhold federal taxes of $2,000 in addition to withholding state taxes of $320.
W9 Form
If you win a prize of more than $601 in a Missouri lottery, you must fill out a W9 form along with your claim form before you can receive your prize. This form requires you to give your Social Security number to the Internal Revenue Service so that you can be assigned a taxpayer identification number. Missouri then uses the taxpayer identification number to issue a 1099 form at the end of the year. The 1099 lists your total prize earnings and state and federal withholdings on them. Use this form to report your prize on your taxes.
Non-Cash Prizes
If you win a non-cash prize in a Missouri lottery or other Missouri contest, you must pay taxes on the fair market value of the property. For example, if you win a car from a Missouri sweepstakes, you must report the fair market value of the car as non-earned income on your taxes. The company furnishing the prize sends you a 1099 at the end of the year listing this value.
Warning
The IRS may audit your return if you underreport the value of a prize, whether the prize is cash or property. Missouri may also audit the return, and if the IRS's audit determines that you did not pay enough tax on the prize, it can amend your Missouri return to reflect the new taxes that you owe to the IRS. If you disagree with the value of a non-cash prize on your 1099, contact the IRS to contest the 1099.
References
- Missouri Lottery: When You Win - Taxes; 2011
- Bankrate.com: Prize Winnings: One of 5 Terrible Tax Surprises; Kay Bell;
- Bankrate.com: Tax Talk: Reducing Prize Taxes; George Saenz; February 2003
- Internal Revenue Service. "Publication 4706 (Rev. 12-2010)," Page 2. Accessed Oct. 25, 2019.
- Internal Revenue Service. "Instructions for Forms W-2G and 5754 (2019)." Accessed Oct. 25, 2019.
- Brides. "This Is What American Weddings Look Like Today." Accessed Oct. 25, 2019.
- Internal Revenue Service. "2019 Instructions for Forms W-2G and 5754," Page 2. Accessed Oct. 25, 2019.
- Powerball. "Powerball Numbers for January 13, 2016." Accessed Oct. 25, 2019.
- MIT Press Journals. "The Ticket to Easy Street? The Financial Consequences of Winning the Lottery." Accessed Oct. 27, 2019.
- Federal Trade Commission. "Winners are losers in lottery & sweepstakes scams." Accessed Oct. 27, 2019.
Writer Bio
Jack Ori has been a writer since 2009. He has worked with clients in the legal, financial and nonprofit industries, as well as contributed self-help articles to various publications.