Carrie Reese, CPA, guest blogs today while I am lounging in Northern Michigan on the shores of Grand Traverse Bay. Carrie is a valued member of our tax department, an up-and-coming leader in the Dallas Society of CPAs, and a new mom. She’s pretty funny, too.
Earlier this year (two days after the tax deadline to be exact) I gave birth to our first child, and thus began a short stage in life where I was very busy, yet had a lot of free time. Yes, many nights of sleep were far too short, and doctor’s appointments aplenty, but I also found myself sitting around the house a large portion of the day. If my history tells us anything, it’s that I like to fill those gaps with game shows! A part of our new morning routine was sitting down to watch The Price is Right (TPIR). Just because I was on maternity leave didn’t mean I still didn’t think about taxes! All that ran through my mind as the poor college student celebrated winning a new car, a trip to Spain, and a new washer/ dryer set was, How on earth is that kid going to pay the taxes?
I would imagine that most people applying for and participating in a game show have no idea the tax implications of that windfall of prizes they’re trying so hard to win. As the bells ding and the confetti flies, accountants on staff are hurriedly preparing the paperwork backstage, waiting for the cameras to stop rolling.
With TPIR and many other shows, you may decline to accept the prizes, but a cash payout is not an option. If you choose to go home with your prizes, you are responsible for federal and state taxes in the state the show is filmed. You must pay taxes on the MSRP, not necessarily the discounted price on the open market.
If you win in the state of California (where TPIR is filmed), you must file and pay California state income tax, which happens to have the highest individual state income tax rate at 13.3%. In the case of TPIR, you must pay the California state income tax at the game show studio before the prizes are ‘released’!
This can be a tall order for someone who has just won $35,000 in prizes but no actual cash. Many contestants decline their prizes simply because they cannot afford to pay the taxes.
I suppose the takeaway is that it’s a much smarter tax move to play a game show that awards only cash. However, you do have to remember to take some of that cash and pay your taxes. Just ask Richard Hatch, the winner on the first season of the TV reality series Survivor. He received $1,000,000 in cash for his triumph. Because he did not pay Federal income tax on his $1,000,000 of winnings and other income in excess of $300,000, he was an involuntary guest of the Federal government twice for a total of 60 months.