Ever wonder, “How are sweepstakes winnings taxed?” Here’s the short answer: the Internal Revenue Service (IRS) sees all your cash and non-cash prizes as taxable income. That means you have to report it.
But don’t worry. In this guide, you’ll get simple, friendly tips on how to handle taxes on your winnings, from understanding tax brackets to making smart deductions on your Form 1040.
Let’s get you ready to save more of your prize money!
Key Takeaways
Your sweepstakes winnings are taxed as ordinary income. If your prize is valued at $600 or more, you’ll receive an IRS Form 1099-MISC. For winnings over $5,000, expect a mandatory federal withholding of 24%.
Federal tax rates for 2025 range from 10% to 37%, depending on your total income. A large prize can easily push you into a higher tax bracket, so it’s important to plan ahead.
Living in one of the nine states with no state income tax can save you a bundle. These states include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. In contrast, a state like New York can add a tax of up to 10.9%.
You can lower your tax bill by itemizing deductions on Schedule A. This includes deducting gambling losses (up to the amount of your winnings) or making charitable contributions to qualified non-profits.
Some sponsors “gross up” a prize, meaning they add extra cash to help you cover the tax bill. For a $5,000 prize with a 24% tax rate, a sponsor might give you a total of $6,579 to ensure you walk away with the full prize value after taxes.
Table of Contents
Are sweepstakes winnings taxable income?
Yes, sweepstakes winnings are absolutely considered taxable prizes. The IRS treats them just like ordinary income. Whether you win cash, a car, or a vacation, you must report its fair market value (FMV) on your tax return.
Fair market value is simply the price an item would sell for on the open market. So, if you win a new laptop with a retail price of $1,500, you report $1,500 of income, even if you never sell it. For those interested in sweepstakes casinos, sites like Vegas Insider (https://www.vegasinsider.com/casinos/sweepstakes/new/), a sweepstakes casino aggregator, can provide more details on available options and promotions.
A large prize can easily push you into a higher federal tax bracket, increasing your overall tax bill. According to the IRS, if your prize is valued at $600 or more, the sponsor is required to send you a Form 1099-MISC detailing the value of your winnings. For some gambling winnings, you might receive a Form W-2G instead.
Even contestants on popular game shows like The Price is Right must claim their prizes as income, and many are surprised by the hefty tax bill that follows.
So, how do different types of prizes affect what you owe?
Types of taxable winnings
Whether you win a dream vacation from a contest, hit the Powerball jackpot, or take home a showcase on a game show, the IRS is waiting for its share. Prizes come in many shapes and sizes, and how they’re taxed depends on what you win.
What counts as sweepstakes and contest prizes?
Sweepstakes and contest prizes cover a wide range of items. It could be something as small as a $25 gift card from a local radio station or as big as the HGTV Dream Home. No matter the size, any prize won through these events is considered taxable income.
If your total winnings from a single sponsor are $600 or more for the year, they must report it to the IRS using Form 1099-MISC. It’s a common misconception that prizes under $600 are tax-free. Legally, you are required to report all winnings, no matter how small, on your annual tax return.
Are lottery and raffle winnings taxable?
Yes, lottery and raffle winnings are taxed as ordinary income. All prizes, whether cash or property, must be reported on your tax return. For non-cash items, you’ll report their fair market value.
For most significant lottery wins, you’ll receive a Form W-2G, Certain Gambling Winnings. This form is typically issued for lottery winnings over $600, and it details the amount you won and any federal income tax that was withheld at the time you claimed your prize.
The safest way to double your money is to fold it over once and put it in your pocket. – Kin Hubbard
How are game show prizes taxed?
Just like other prizes, game show winnings are taxable income. If your prize is valued at over $600, the show’s producers will send you a Form 1099-MISC. This applies to both cash and non-cash prizes, which are taxed at their full retail value.
This can create a tough situation. A 2013 winner on The Price is Right won a $157,300 Audi but faced a tax bill of nearly $61,400. Because shows rarely offer a cash alternative, winners often have to either forfeit the prize or sell it quickly to cover the taxes.
One former winner on Reddit gave this insider tip: you only pay California state tax withholding (7%) before receiving your prizes if you’re a non-resident. You file federal taxes for the year you actually receive the prizes, not when you win them.
Making estimated tax payments is a smart way to avoid penalties when you file your return.
How do you report sweepstakes winnings?
You’ll typically report your sweepstakes winnings using the information on Form 1099-MISC. It’s a straightforward process, but you don’t want to miss any key details.
What is IRS Form 1099-MISC?
IRS Form 1099-MISC is a tax form used to report “miscellaneous” income earned outside of regular wages. For sweepstakes, sponsors must send you this form if your prize value is $600 or more within a single year.
The amount of your winnings is typically shown in Box 3, “Other income.” This is the number you’ll use when you file your taxes with software like TurboTax or through a CPA. The deadline for sponsors to mail this form to you is usually January 31st of the year after you win.
Crucially, even if you don’t receive a 1099-MISC (perhaps because your prize was worth $599), you are still legally required to report that income to the IRS.
How do you report winnings on your tax return?
You must report all winnings as “other income” on your tax return. This applies to both cash and non-cash prizes, regardless of whether you received a 1099 form.
The specific place to do this is on Schedule 1 (Form 1040), Line 8. Using tax software like H&R Block or TurboTax makes this simple. These programs will ask you if you have other income to report and guide you to the correct spot to enter the information from your 1099-MISC.
A great pro-tip is to open a separate savings account right after you win. Immediately move about 30% of the prize’s value into that account. This way, the tax money is already set aside, and you won’t be tempted to spend it.
Federal taxes on sweepstakes winnings
When you win a prize, the IRS considers it income. This new income can bump you into a higher tax bracket, so it’s smart to understand how tax rates and withholding work to save yourself a headache later.
What tax rates apply to winnings?
The tax rate on your winnings depends on your total income for the year. The U.S. has a progressive tax system, which means higher income is taxed at higher rates. For 2025, there are seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
A big win can push your income into a higher bracket. It’s important to remember that you only pay the higher rate on the portion of your income that falls into that new bracket, not on your entire income.
| Tax Rate | 2025 Taxable Income (Single Filers) |
|---|---|
| 10% | $0 to $11,925 |
| 12% | $11,926 to $48,475 |
| 22% | $48,476 to $103,350 |
| 24% | $103,351 to $197,300 |
| 32% | $197,301 to $250,525 |
| 35% | $250,526 to $626,350 |
| 37% | $626,351 or more |
Are there federal withholding requirements?
Yes, there are. If you win more than $5,000 in cash from a sweepstakes or lottery, the payer is required to withhold 24% for federal taxes right off the top. This is often called “backup withholding.”
This 24% is essentially a down payment on your total tax bill. If your winnings push you into a higher tax bracket, like 32% or 37%, you will still owe the difference when you file your taxes. Non-cash prizes valued over $5,000 are also subject to this rule, though the logistics can be trickier.
If you don’t provide the prize sponsor with your correct taxpayer identification number (TIN), they are required to apply this 24% backup withholding to any prize over $600.
State taxes on sweepstakes winnings
On top of federal taxes, you also have to think about state taxes. Every state has its own rules for taxing winnings, and where you live can make a huge difference in how much you keep.
How do state taxes vary on winnings?
State taxes on winnings vary dramatically. Some states have high income tax rates that apply to your prize, while others have none at all. Remember, you pay taxes based on the laws of the state where you live, not where the sweepstakes sponsor is located.
| State | Top Income Tax Rate on Winnings (2025) |
|---|---|
| New York | 10.9% |
| California | 0% (Lottery winnings exempt) |
| Texas | 0% (No state income tax) |
| Florida | 0% (No state income tax) |
As the table shows, a winner in New York would pay a significant amount in state taxes, while a winner in Florida would pay nothing. Some cities, like New York City, even add their own local income tax on top of the state tax.
Which states do not tax income?
If you live in one of the following nine states, you’re in luck! As of 2025, these states do not have a state income tax, which means they won’t tax your sweepstakes winnings.
- Alaska
- Florida
- Nevada
- New Hampshire (As of 2025, no longer taxes interest and dividends)
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Living in one of these states provides a significant advantage for prize winners. However, you are still responsible for paying federal income taxes on all your winnings.
Lump sum vs. annuity payments
For very large prizes, you might get a choice: take all the money at once (a lump sum) or receive it in yearly payments over time (an annuity). Each choice has a big impact on your tax bill.
What are the tax effects of lump sum payments?
Taking a lump sum means all your winnings are counted as income in a single year. This will almost certainly push you into the highest federal tax bracket (37% for income over $626,351 for single filers in 2025).
For example, imagine you have a yearly income of $80,000 and win a $1 million lump sum. Your total income for the year becomes $1.08 million. This pushes you from the 22% bracket all the way to the 37% bracket, resulting in a much larger tax bill for that year.
The main benefit is that you get all the money immediately, giving you full control to invest it through a firm like Charles Schwab or Fidelity.
How are annuity payments taxed?
Annuity payments spread your winnings, and the resulting taxes, over several years (often 20 or 30). This can be a great way to manage your tax burden.
By receiving smaller annual payments, your income each year is much lower than with a lump sum. This can keep you in a lower tax bracket, potentially saving you a lot of money in taxes over the long run.
Using the same example, a $1 million prize paid over 20 years would be about $50,000 per year. Added to your $80,000 salary, your total annual income would be $130,000. This would keep you in the 24% tax bracket for 2025, a significant saving compared to the 37% you’d face with the lump sum.
How can you reduce taxes on your winnings?
Winning is exciting, but paying taxes isn’t. The good news is there are a few smart ways to lower your tax bill, like deducting gambling losses or making charitable donations.
Can charitable contributions lower your tax bill?
Yes, making donations to qualified charities can be a great way to reduce your taxable income. When you donate cash or property to a tax-exempt organization, you can deduct the value of that donation if you itemize your deductions.
Another option is gifting some of your winnings to friends or family. For 2025, the annual gift tax exclusion is $19,000 per person. This means you can give up to $19,000 to any number of individuals without having to file a gift tax return. If you’re married, you and your spouse can combine your exclusions to give up to $38,000 per person.
How do you deduct gambling losses?
You can deduct gambling losses, but there’s a big rule: you can only deduct losses up to the amount of your winnings. For example, if you won $5,000 but had $7,000 in losses for the year, you can only deduct $5,000. You can’t use the extra $2,000 in losses to reduce your other taxable income.
To claim these losses, you must:
- Itemize your deductions: You have to file a Schedule A (Form 1040) instead of taking the standard deduction.
- Keep detailed records: The IRS requires you to have proof of your winnings and losses. This means keeping wagering tickets, payment slips, and a detailed diary of your gambling activity.
For 2025, the standard deduction for a single filer is projected to be around $15,750. If your total itemized deductions (including gambling losses, mortgage interest, etc.) are less than this, you’re better off taking the standard deduction and forgoing the loss write-off.
Understanding grossing up your prize for taxes
Some generous sponsors use a practice called “grossing up” to help winners with their tax burden. It’s a great perk if you can find a sweepstakes that offers it!
What does grossing up mean?
Grossing up is when a sponsor increases the total prize value to cover the winner’s expected tax liability. Essentially, they give you extra money so that after you pay taxes, you’re left with the originally advertised prize amount.
The formula is simple: the sponsor divides the net prize value by (1 minus the tax rate). For a $5,000 prize where the sponsor assumes a 24% federal tax rate, the calculation would be $5,000 / (1 – 0.24), which equals a total grossed-up prize of $6,578.95.
This isn’t required by law, but it’s a fantastic way for companies to build goodwill and ensure their winners are truly happy.
Can you see examples of grossing up?
Sure! Let’s say you win a prize with an advertised value of $10,000.
- Simple Gross-Up: The sponsor might estimate a 30% tax burden and simply add a $3,000 check to your prize. You’d receive the $10,000 prize plus the check, and your 1099-MISC would show a total income of $13,000.
- Complex Gross-Up: A more accurate method accounts for the fact that the gross-up check itself is also taxable. In this scenario, for a $10,000 prize, the sponsor might give you an additional check for $4,285.71. This brings the total prize value to $14,285.71, which is the amount reported to the IRS.
Always check the official sweepstakes rules to see if a tax gross-up is included. It can make a huge difference in your out-of-pocket costs.
How Will Sweepstakes Taxes Work in 2025?
The core rules for taxing sweepstakes winnings remain consistent for 2025. Any prize you win is considered taxable income. If it’s valued at $600 or more, the sponsor must send you a Form 1099-MISC.
The federal withholding rate on prizes over $5,000 remains at 24%. However, the tax brackets themselves have been adjusted for inflation. For 2025, the seven federal tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Where your total income falls will determine your final tax rate.
State tax laws are also crucial. The nine states with no income tax continue to offer a significant advantage for winners. However, states with high income taxes, like New York, will continue to take a substantial portion of winnings.
To avoid any surprises, it’s always a smart move to consult with a tax professional. They can help you navigate the specific rules for your situation and explore ways to legally reduce your tax bill, such as through charitable giving or other deductions.
People Also Ask
Do I have to pay taxes on sweepstakes winnings?
Yes, the IRS considers all sweepstakes winnings taxable income. You must report all prizes, cash and non-cash, on your yearly tax return.
How much will the IRS withhold from my prize money?
For cash prizes over $5,000, the payer is generally required to withhold a flat 24% for federal taxes. However, your final tax rate could be higher depending on your total annual income.
Can I lower my tax bill after winning a large cash prize?
Absolutely! If you itemize deductions on Schedule A, you can lower your taxable income. Common strategies include deducting gambling losses (up to your winnings) or making charitable donations to qualified non-profits.
Are there special credits available that help offset taxes owed from sweepstakes wins?
While there are no credits specifically for sweepstakes wins, a large prize could make you ineligible for certain income-based credits. However, if your situation qualifies, you might still be able to claim credits like the Child Tax Credit, which is $2,200 per child for 2025.
Will winning affect other financial areas like mortgages or credit scores?
Winning won’t directly impact your credit score. However, a large cash deposit will be visible to lenders when you apply for a mortgage. They will want to verify the source of the funds, but it generally won’t hurt your application as long as you can show you’ve handled the tax implications properly.
What happens if I give away part of my winnings? Is it taxed differently then?
If you give away money, you might have to consider the gift tax. For 2025, you can give up to $19,000 to any number of people without any tax consequences or paperwork. If you give more than that to one person, you’ll have to file a gift tax return, but you likely won’t owe taxes unless you exceed your lifetime gift exemption of over $13 million.
