SVP, Fae Savignano contributed this informative post on what sponsors need to know about filing and processing winner W-9’s and 1099’s for their promotions.
Sponsors of Promotion Games of Chance offering and awarding prizes valued at $600 or more should be aware that they are responsible to obtain a signed, legible copy of an IRS form W-9 from every winner that they issue a prize to. This means that any eligible entrant who has been verified as a prize Winner you issue a prize of $600 or more to, will need to fill out a W-9 form for you to keep on record, regardless of the number of times in the course of a tax year the same person wins a prize. In addition, if one person wins multiple lower valued prizes within the same year, which when added together total $600 or more, they too will be required to complete a form W-9. It is not necessary to send the actual or copy of the W-9 to the IRS; however, the information contained thereon will be used by the Sponsor to complete an informational report for the IRS, such as a 1099-MISC form for each appropriate Winner. And, the Sponsor must send a copy of the 1099-MISC form to the appropriate Winner by mail, postmarked by January 31st of the year following the year in which said prize was won, and to the IRS by February 28th. Please note that there are associated penalties that may be imposed by the IRS if this requirement is not adhered to. As tax laws change frequently, please refer to the IRS website directly for the most recent updates, forms and information.
The Official Rules governing the Promotion and the notification documents sent to the potential Winners should clearly state what the requirements of accepting a prize entails, the forms that you are requesting them to fill out, and how their tax information will be used. The potential Winner should be made aware that they will be responsible for any taxes imposed on their prize (including, but not limited to all local, state and federal taxes) and therefore are required to complete and deliver to the Sponsor, a completed W-9 form. Their notification documents should also advise the Winner to consult with their tax advisor. The form will ask for the recipient’s name, address, their taxpayer identification number, date and signature. Needless to say, the W-9 form contains sensitive information which should be kept private and secure. The sender should be instructed by the Sponsor (or their designated Agency/Administrator) to send this form as a secure or encrypted email attachment or via mail.
The Internal Revenue Code mandates that the value of prize (considered as “other income”) be included in the Winner’s gross income. If the value of the prize is $600 or more, the Sponsor (or their designated Agency/Prize Provider) must file with the Internal Revenue Service a Form 1099 (with a copy to the Winner) reporting the value of said prize, as explained above. The information provided on the 1099 Form will include the Sponsor’s, name, address, their tax ID number, value of the prize, winner’s name, their address, and their social security number. The amount of tax a Winner must pay on the prize received is determined on the Winner’s income and the tax bracket they fall into. When the prize is cash, the value to be reported on their 1099 form will be the dollar amount of the prize (face value). If the prize is not cash or its equivalent, then the approximate retail value (ARV) or the fair market value (FMV) of the prize must be reported. Although the Official Rules may post a specific ARV of a prize (other than cash); the amount reported on the 1099 form should reflect the actual cost expended by the Sponsor which may be less than the posted ARV or, if the prize is a vehicle, the manufacturer’s suggested retail price (MSRP). The Sponsor may (in their sole discretion) decide to assist the Winner by offering additional cash as part of their prize to assist them in paying any taxes due on the prize they received. However, it should clear to the Sponsor and to the Winner that any additional cash offered/received for this purpose will also be considered and reported as taxable income to the Winner. There may be instances when the amount noted on the 1099 form is disputed by the recipient Winner. The Sponsor may (in their sole discretion) revise the 1099 form amount if there is valid proof that the FMV of the prize won is lower than the ARV value reported.
Taxes on Prizes Under $600
Another point to keep in mind is that if a Winner wins a prize valued under $600 they will not receive a 1099 form; however, this does not preclude them from reporting their winnings as “other income” and from paying income taxes.
Although we are not tax lawyers we are very knowledgeable professionals with extensive experience in running promotions, authoring Official Rules and prize claim documents, notifying potential Winners, verifying/clearing Winners, awarding/fulfilling prizes and processing 1099’s. Contact us.
To read more posts by Marden-Kane, please visit our main blog page or subscribe to our email list.
Do I have to pay tax on a sweepstakes winning to recieve the check for that winning. I don’t have the money to pay up front tax can it be paid later after I get the winning check (2.5m).
Typically in the US you would only pay taxes on winnings when you file your regular tax return.
If you win a large sweepstakes prize, what percent goes to IRS for the taxes on it, and what are the legal ways to reduce the amount paid? Please reply!
Please refer to the above information. All prizes won should be reported to the IRS on your tax form, either with a 1099 or as “other income” if the prize(s) are valued at $599 or less. You would need to consult an accountant or tax professional with any tax questions you have on specific prizes you have won.
I have a quick question – There are three parties involved (1) the company donating the item (“Donor”), the business hosting the auction (“Auction”) and the (“Winner”). You use the term Sponsor in your post but it is unclear to me if the Sponsor is the Donor or the Auction? Can you please confirm which exact party has to file the 1099s? If the Donor gives the item to be auctioned to the Auction do they still have to file the forms. Interested to hear your thoughts.
The Sponsor is the company that is running the sweepstakes. It sounds like your example is not a sweepstakes or contest at all. You would need to consult your attorney as to who is responsible in your particular situation. If you need help and would like assistance in generating 1099s in the future, please contact us as we can help.
If my son (15) won a contest to travel abroad to attend a professional soccer match, airfare, accomadations, etc totaling $8,500 (approx. value). Will he have to pay tax on this trip or will I? He does not have any income.
Thank you!
Check the contest rules. They should state who would be responsible for US taxes if the prize is won by a minor (or even if minors are eligible to enter).If the rules says that if a minor wins the prize it will be awarded in the name of the parent/legal guardian, then the parent/legal guardian would be liable for the taxes. If they say it would be in the name of the child, then you should check with your accountant/tax preparer; professional advice would be required to ascertain if the child should file that amount themselves or if they can file it as a dependent.
If you have a winner is from another country win a prize in the US. do they still get a 1099 form or another form?
Every country has different tax reporting forms and requirements. 1099’s are only for the US.
Is the US sponsor required to file any forms with the IRS if the winner is a resident of British Columbia?
It would depend on the rules of the promotion. Consult with your attorney or promotional agency as Marden-Kane did not administer this promotion.
We had a raffle and the winner was drawn right at the end of December. The winner was notified via telephone in December and paperwork was sent to the winner for completion. However due to the holidays, the winner did not return his completed paperwork or receive his prize until now in January. Do we issue the 1099-misc for the 2017 tax year or the 2018 tax year as this is the year he actually received his prize? Any advice is appreciated. Thank you in advance.
Hi, For this situation it would be the 2018 tax year since they had no access to their prize in 2017.
Jennifer, that is what we were thinking but I just wanted to confirm it with someone else. Thank you so much.
If i win a vacation price but never used the vacation price, do i still have to pay taxes?
People who win trips that are then booked may be subject to taxes even though they do not take the trip. You should ask your tax accountant.
I’m currently waiting to receive a prize with the ARV of $17,000. Will I be responsible for paying the FMV tax on it before I receive it?
No, you have no value until you receive your prize unless it is a prize that is deemed to have constructive receipt and then it might be taxable before you actually use it, like a voucher for airfare. Consult your tax accountant on next steps.
I went on a trip for 2 that a non family member won. Do they pay the taxes on the full ARV or do we split it? They had both of us fill out forms for tax purposes.
If you filled out separate papers, we would think you would get a separate 1099 in January of the year following when you took the trip. You should ask your tax accountant for guidance.
My son won $22,000 with his basketball team and the checks were sent to him. However, he then sent checks to each member of the team. Each player received $4,400. What does he need to do to send out 1099 forms to each of his team mates and is there a separate form that shows that he distributed the funds so that he does not pay tax on all $22,000.
That would be a question for your tax accountant and the contest/sweepstakes administrator who issued 1099’s for that program. Good luck!
If my wife and myself no longer file a return due income only been social security for both.
And i win $1000.00 for a cook -off do i still need to file a return to report this income?
You need to look at how the $1000 impacts your tax situation when combined with your SS income and any interest or dividends you might have. Chances are your personal exemptions and standard deduction is sufficient to offset but you would need to speak to your accountant or try one of the free online tax programs.
What about prizes that include coupon codes or promo codes to redeem an item and have an expiration date. Are those taxable?
Hi Olga,
The short answer is that if it is a prize it is taxable in the US — although you will not get a 1099 if the prize amount is low. This includes electronic gift cards or ecodes that may have an expiration date. Any cents off coupons are not taxed as prizes. When in doubt, especially if you won a prize that you did not get a 1099 for, ask your tax accountant.
Are sweepstakes allowed to fill out your 1099 with the ARV if you are only receiving a cash “in lieu of” which is usually far less (ie $700,000 ” in lieu of” a 1.6mil ARV prize)?
The 1099 would list only the ARV of the prize that you were actually awarded. Per your example, the 1099 should only list the $700,000 if that is the prize you actually received.
When winning a sweepstakes is there an insurance fee that must be paid before the check can be sent out?
If you are requested to pay any fees to collect a prize it is most likely a scam. Check out this article from the FTC on how to spot a scam for more info: https://www.consumer.ftc.gov/articles/0199-prize-scams#signs
I received an email stating I am a possible winner in a promotion I signed up for and they are requiring me to complete a W-2 and a notorized grand prize affidavit, how can u tell if it’s a scam or really as I am nervous to give my SS# to them.
If you remember entering the promotion, that is a good start. The Official Rules should state who the administrator of the promotion is so you can look them up and call them to confirm that whoever is contacting you is who they say they are.
If the sponsor sends a 1099-MISC, do I have to put that income in that section and assign as business income or can I put it in the other income section and move on?
Hi Josh. You would need to consult your accountant. We can’t provide tax advice or guidance.
When should I expect my w-9 documents? It do I just file it it my self, and if so where do I send it?
If you won a prize with an ARV at or over $600, then the administrator or sponsor of the promotion should have sent you a W-9 to complete so they can issue you a 1099 by the end of January of the following year. If the prize is valued at less than $600 consult your accountant as the 1099 will be your responsibility. If you never were asked to complete a W-9 for a prize valued at $600 or over, contact the promotion administrator or sponsor of the promotion.
My husband and daughter won a prize trip that includes having the taxes paid. Are there any taxes associated with this other than income taxes? Is the amount the sponsor is paying specifically for income taxes? Does it show up as withholding on the 1099 one receives?
You would need to consult the sponsor and a tax accountant for how they are handling this. Typically when a sponsor awards funds to offset taxes it is in the form of cash that the winner would need to save to apply towards taxes.
In this case, they had said they were paying to the IRS. I was not really wanting to hire a tax accountant as we normally do our own taxes, so I was trying to figure it out. Thank you that you were so quick to respond to my question. 🙂
Hi I recently entered a giveaway to receive an iPhone and air pods, the guy I am contacting is telling me that I need to fill out a W9 form, I don’t feel comfortable giving it out nor my social, what else can I do? So that I can still receive the prize?
Prizes with a high retail value like that are legally required to have a 1099 issued to the recipient by the IRS. It sounds like the program administrator is just following legal guidelines. If you don’t give that info, most likely they can’t release the prize to you and will move on to someone else.