What Is the Tax on Prize Money? Federal, State, and Withholding

The tax on prize money at the federal level is ordinary income tax, meaning your winnings are added to your wages and other earnings and taxed at graduated rates that reach 37% for 2026 taxable income above $640,600 for single filers.¹ Most states impose their own tax on top of that. For gambling-type wins over $5,000, payers withhold 24% upfront, but that number is a prepayment, not the final bill.

How Federal Tax Applies to Winnings

Nearly all prizes and awards count as gross income under federal law.² The IRS regulation is explicit that this covers “radio and television giveaway shows, door prizes, and awards in contests of all types.”³ So a lottery jackpot, a car from a game show, a vacation from a radio contest, and a raffle prize at a charity gala are all treated the same way: taxable income in the year you receive them.

Because it’s ordinary income, the prize gets stacked on everything else you earned. For 2026, the single-filer brackets are:¹

10% on income up to $12,400
12% on $12,401 to $50,400
22% on $50,401 to $105,700
24% on $105,701 to $201,775
32% on $201,776 to $256,225
35% on $256,226 to $640,600
37% on income over $640,600

Say you already earn $90,000 and win a $150,000 prize. Your combined $240,000 pushes the top slice of your income into the 35% bracket. Not every dollar of the prize is taxed at 35%, because each slice is taxed at the rate for the bracket it falls into, but the effective rate on a large win climbs quickly.

What Gets Withheld Upfront

For gambling-type winnings — lotteries, casinos, sweepstakes involving a wager, and pari-mutuel betting — the payer must withhold 24% for federal income tax when proceeds exceed $5,000.⁴ For most wagers other than lotteries and sweepstakes, the payout also has to be at least 300 times the amount wagered. State lotteries and sweepstakes trigger withholding at $5,000 regardless of the wager size.

That 24% is only a deposit against your final liability. If your bracket ends up higher, you’ll owe the difference at filing. If it turns out to be lower, the excess comes back as a refund.

Non-gambling prizes work differently. A car from a promotional giveaway, for instance, does not trigger automatic withholding at the time it’s awarded. Backup withholding of 24% does apply if you fail to give the sponsor a valid taxpayer identification number.⁵

If you’re not a U.S. citizen or resident, withholding on U.S.-source prize and gambling income jumps to 30%. A tax treaty between your country and the United States may reduce or eliminate that rate, but only if you give the payer a completed Form W-8BEN with your taxpayer identification number.⁶

How Non-Cash Prizes Are Valued

When the prize isn’t cash, you owe tax on its fair market value, not the retail sticker price the sponsor promotes. Fair market value is what a willing buyer would pay a willing seller on the open market. For a car, that’s typically closer to online pricing-guide values or local dealer listings than to the manufacturer’s suggested retail price.

The sponsor will report a value on your 1099-MISC or W-2G, but you’re not locked into that figure. If you can document a lower market value, you can report the lower number. Save screenshots of comparable sales, pricing-guide printouts, and any written appraisal. For items with a fair market value above $5,000, a qualified independent appraisal adds credibility, especially for unique property like art or collectibles.⁷

Reporting Prize Income on Your Return

The form you get from the payer depends on how you won.

W-2G for Gambling Winnings

A Form W-2G comes when gambling winnings reach the threshold for that type of game. Starting in 2026, the threshold for bingo, keno, and slot machines is $2,000.⁸ For other gambling — table games, poker tournaments, sports bets — the threshold is $2,000 in proceeds that are also at least 300 times the wager. The form shows gross winnings and any tax withheld.

1099-MISC for Non-Gambling Prizes

Prizes that don’t involve a wager — sweepstakes, game-show merchandise, promotional giveaways — go on Form 1099-MISC, Box 3, when the value is $600 or more.⁹ The sponsor reports the fair market value; you get a copy.

Where the Numbers Go on Form 1040

Both types land on Schedule 1. Gambling winnings go on line 8b; other prizes and awards go on line 8i. The total flows through to your Form 1040 and is taxed with the rest of your income. And if you never get a W-2G or 1099-MISC because the amount fell below the reporting threshold, you still have to report the winnings.¹⁰

Offsetting Gambling Wins With Losses

Gambling losses can offset gambling winnings, but only if you itemize on Schedule A, and only up to the amount of gambling income you reported.¹¹ Losses can’t create a net deduction against your wages or other income. You also need a contemporaneous log — dates, games, amounts wagered, amounts won and lost — plus receipts, tickets, or statements. Without records, an auditor can disallow the deduction outright.

State Income Taxes on Prize Money

Most states tax prize money as income, with rates that run from about 1% to roughly 10.9% depending on the state and the amount. Some use a flat rate; others apply a progressive structure like the federal one. A handful of states have no income tax at all, so residents there keep more of the after-federal winnings.

State lottery commissions often withhold state tax at payout, but the withholding rate may not match what you actually owe. Winning in a state where you don’t live can create a filing obligation in both states, though home states typically offer a credit for tax paid to the other state to prevent full double taxation. Your state department of revenue publishes the specific rates and filing rules that apply.

If You Don’t Want the Prize

A car or trip can look less appealing once you calculate the tax on it. You have a few ways out.

Decline it before taking possession. Refuse a prize before you accept it and you owe nothing. The IRS states directly: “If you refuse to accept a prize, don’t include its value in your income.”¹⁰ Timing is what matters. Once you accept or take control, the income is realized, and giving the prize away afterward doesn’t undo the tax.

Donate it after accepting. If you accept and then donate to a qualified charity, you still owe tax on the full fair market value as income. You may be able to claim a charitable contribution deduction that offsets some or all of that tax, but only if you itemize. Donations of property over $500 require Form 8283, and anything above $5,000 in claimed value needs a qualified appraisal.¹²

One narrow statutory exclusion under Section 74(b) lets certain achievement awards in fields like science, education, or civic service pass through untaxed if you didn’t enter to win, aren’t obligated to perform future services, and direct the payer to send the money to a charity or government entity.² It does not apply to sweepstakes, game shows, or anything else you actively entered.

Lottery Lump Sum vs. Annuity

Large lottery jackpots usually offer a choice: a reduced lump sum now, or the full advertised amount paid out annually over 20 to 30 years. The tax consequences differ sharply.

A lump sum drops the entire prize into one tax year and almost certainly pushes the top of that income into the 37% bracket. An annuity spreads the income out, which can keep each year’s payment in a lower bracket, especially if you don’t have large earnings from other sources. A lump sum, on the other hand, lets you invest the after-tax proceeds right away. There is no universally right choice; it turns on your other income, your investment plans, and how much certainty you want.

Estimated Payments and Penalties

If the tax withheld from a prize doesn’t cover what you’ll owe, you may need to make quarterly estimated payments using Form 1040-ES. The IRS generally expects estimated payments when you anticipate owing $1,000 or more after withholding and credits.¹³ Quarterly due dates fall in April, June, September, and the following January.

Your annual return is due April 15. If you owe a balance and miss that date, the failure-to-pay penalty is 0.5% of the unpaid amount per month or partial month, up to a 25% cap.¹⁴ Underreporting your income can also draw a 20% accuracy-related penalty on the underpaid amount.¹⁵ Reporting every prize, including small ones with no accompanying tax form, is the cleanest way to stay out of both.

Olympic and Paralympic Medal Exception

One statutory carve-out worth knowing: medals and prize money from the U.S. Olympic Committee for competing in the Olympic or Paralympic Games are excluded from gross income, provided your adjusted gross income for the year doesn’t exceed $1,000,000 ($500,000 if married filing separately).² This exclusion is specific to Olympic and Paralympic competition and does not extend to other athletic prizes or contest winnings.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Office of the Law Revision Counsel. 26 USC 74 – Prizes and Awards
3
eCFR. 26 CFR 1.74-1 – Prizes and Awards
4
Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source
5
Internal Revenue Service. Employer’s Tax Guide (Publication 15)
6
Internal Revenue Service. Publication 515 – Withholding of Tax on Nonresident Aliens
7
Internal Revenue Service. Publication 561 – Determining the Value of Donated Property
8
Internal Revenue Service. Instructions for Forms W-2G and 5754 (01/2026)
9
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
10
Internal Revenue Service. Publication 525 – Taxable and Nontaxable Income
11
Internal Revenue Service. Topic No. 419 – Gambling Income and Losses
12
Internal Revenue Service. Topic No. 506 – Charitable Contributions
13
Internal Revenue Service. Estimated Taxes
14
Internal Revenue Service. Failure to Pay Penalty
15
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments