If you just came here for the numbers and breakdown, scroll down a little until you hit the words in bold (where I say “Let’s break it down a little.”)
Sorry to anyone invested for interrupting my series on breaking into working in television.
In case you haven’t heard, I got linked from Yahoo! Shine yesterday, and now I’m getting thousands of hits. (*Bows to applause*) Yes, thank you, thank you.
I’ve been getting a fair amount of comments/emails and such. So, let me take a post to talk about the taxes – since that seems to be the big issue.
The night I won, I started googling information on what the taxes would be like on my prizes. I saw so many comments by people with this angry attitude toward game shows winners. “How dare you complain about taxes when it’s all just a bonus to you?!”
Some people did it in a nice way. “A brand new car, and I only have to pay the taxes?! Sign me up!”
I didn’t get involved in any of those discussions, because really. Why? But now that everyone is talking about it with me, let’s go for it.
I don’t want to sound ungrateful in the least. I adore game shows, and anything I win truly is a lovely bonus. (I do agree with that part of the sentiment from the above comments I mentioned.)
However, I also think it’s a little silly how people marginalize the taxes for game shows winners.
As I said, there’s this “‘wah wah, poor me’ – Hey, buck up, you won on a game show!” attitude all around the internet if any past winner even dare utter the word “taxes.”
But, taxes are very real. Taxes definitely prohibit many people from keeping prizes they win (or going on trips they win).
Let’s break it down a little.
To be clear, you are taxed on the value of whatever you win. Of my $21,008 in winnings, only $96 of that was actual money. So, I will be taxed on an extra $21,0008 of “income,” but obviously I can’t just take the thousands of dollars of taxes out of physical, non-cash-money-prizes – unless I sell the stuff I won (which I did).
To understand all the taxes involved:
First, we start with sales tax. I paid $2,067 just to pick up the car.
Then, let’s estimate federal.
I don’t know what bracket everyone’s going to be in. For argument’s sake, let’s go with the median income in Los Angeles. Page 3 of this document states the median income for a single person in Los Angeles – $43,200.
That would mean your game show earnings would be taxed at the 25% rate. So, with this example, we’re up to paying $5,250 in federal taxes.
Then, you have California state tax. There, you’d be in the 8% bracket and pay $1680 to the state.
Add those estimations together:
Sales – $2,067
Fed – $5250
State – $1680
TOTAL: $8997(!)
(Again, those are just assumptions. This would easily be more for someone in a higher income bracket – or for someone who wins a more expensive car and goes on to win a big showcase, therefore getting pushed into a higher tax bracket.)
(And, I will concede it could be less if someone has enough deductions, credits, etc. And I’ve heard the sales tax part of it could, in some circumstances, count as some sort of deduction or something. (I’m not a tax professional, nor have I done taxes for my Price is Right year yet, since we are still in it.))
Anyway, in a pretty safe-ish hypothetical range, you’re paying about $9,000 for your car. But that’s starting to get toward the price for which you could actually buy a car in the first place.
So this idea that “only having to pay the taxes still leaves you with a practically free car”… I don’t know how other people feel, but to me $9,000 is not practically free.
Again, I’m very thankful. And even after selling the car for a depreciated price (since it had previously been owned by me – even if only for double digit miles), I still made thousands of dollars (even after the tax bill).
I will say that in our scenario, though, the government could easily come out the same or ahead of the winner on the actual net winnings after selling prizes for depreciated values and such.
I’m very happy and extremely thankful for my day on The Price is Right, but I’ll never stop thinking it’s funny that people trivialize a tax bill of $9,000ish as though it’s totally nothing (and that everyone could still easily keep this new car) – just because it’s a bill from something fun as opposed to traditional income.
(If you have nine grand to drop on a car, go out and buy yourself a car!)
Yeah, that’s a lot of taxes, though the average Californian would be in the 15% bracket, not the 25%. For FY2013, the personal exemption (3900) + standard deduction (6100) = 10,000 subtracted from your income to get your taxable income. So the median L.A. resident’s 43,200 income = 33,200 of taxable income. Taxable income between 8926 and 36,250 is taxed at 15%, then it goes to 25% until you’re at 87000 and change.
So the good news is the median person can knock 10% of the value of the car off their taxes, relative to your calculation.
Though I’ll add my name to the peanut gallery which says that we get taxed when we have to work for money, and taxes on windfalls should be at least as high. (In fact, they’re still lower, as you weren’t paying social security or medicare taxes.).
All that said, the show could offer to pay the taxes on the car (or at least, pay the sales taxes + assume people are in the 15% bracket and if they’re richer they should easily be able to pay the rest.) so that the winners actually get the goods! Cheapskates.
I knew I was probably missing something/messing something up in regards to the standard deduction. And I knew if anyone would write in with additional information to help, it would be you! 🙂
So, thanks very much for your math smarts on this.
But, I have a question. If the 25% tax bracket starts at $36,251, then wouldn’t everything after one’s initial $3,051 (the difference between the median taxable income and the beginning of the next tax bracket) in winnings still be taxed at 25%?
$43,000 income -($3,900PE + $6,100SD)+$21,008 Winnings=$54,008 of taxable income. $54,008-$36,251=$17,758 of your winnings to be taxed at 25% while the rest will be taxed at 10%-15% if we were still in 2013.
Thanks for the comment, Christopher!
Someone actually explained that earlier in the thread, but I understand the thread is very long. So most people probably aren’t reading down to the first comments… Still a pretty hefty tax bill though, I’d say. 😛
In response to the rest of your comment though, I understand people getting taxed on game show winnings… Though, I think it’d be nicer if somehow they could be taxed on the actual money they received instead of the suggested value of items (which some times is inflated, since you could buy a number of items on game shows for less at certain places).
And if you don’t keep your items, you certainly don’t get to sell them for the full value. I had a friend who worked at a resale car place who gave me an unofficial quote that they could probably buy my car for somewhere in the neighborhood of $14,000 – which is definitely not $19,652 (though that’s what I’ll be taxed on).
I don’t want to make it sound like the the hugest difference (though it is a pretty big one when the math starts to add up), but for people who win multiple cars – or boats (which I hear lose even more value once they’ve been titled), or anything that has to be sold for a depreciated value… the difference between the value of what they win and how much money they actually end up with could become very large.
As far as Price is Right footing the tax bill – as far as I know, they pay practically nothing for the cars because of deals they strike to feature certain companies on the show. So, if The Price is Right started doling out tons of real money to compliment the prizes they give away to probably save money, their financial model would get all wonky.
There is a game on the show called Gas Money, in which the contestant wins $10,000 if she or he wins the car. So, I think that’d really be the game to hope for if someone actually wanted to keep the vehicle.
(And I do realize there will be a set of people out there who could afford to keep the car even paying thousands in taxes because they were saving for a car anyway, or they just have expendable income they’re willing to spend on a car. And, good for those people. :-)…)
Even though I do think the tax issue is a valid problem for game show winners to have, I’ll admit it’s one of the best problems you possibly could have.
Oops. Yeah, you’re right! You’d pay 15% on the first 3000ish dollars, then 25% on the rest, for an average tax rate of 22%. so just give yourself back 3% of the car’s value.
(Sorry, I was in the middle of grading & feeling woozy..>)
And you’re right. If you turn around & sell it you should be taxed on what you got. it’s funny: if I won $20,000 in gold, then the price of gold went down, and I sold the gold for $14,000, I’d report a $20,000 income, but then a $6000 capital loss, and would essentially pay taxes on 14,000. Other assets, such as corporate stocks, bonds, and real estate, work the same way. I’m a bit surprised that a car doesn’t work that way too. Maybe speak with an accountant?
Unless this is another case of “screw the middle/working class” The same way if a rich person can’t pay a mortgage on a third home or an investment property then Bankruptcy Court can reduce the principal owed. But if someone can’t pay the mortgage on the one place they live in they’re responsible to pay back every last dollar they borrowed (or foreclose). But perhaps that’s a topic for your other blog.
I asked someone at H&R block if I’d get some kind of break on taxes since I’d have to sell the car for less than what it was worth.
The person there told me it wouldn’t do anything to help my taxes, but we were also just talking in hypotheticals since I won’t have to worry about it for real, until it’s time for my returns for this year. I’ll push the subject more when it comes to filing at the beginning of next year, and I’ll report back on the blog.
I will say that with all this being brought up, I did do a slight bit of digging on the internet. There actually seems to be sort of a divided opinion on whether loss of money on a car sell can count as a capital loss or not, depending on how people take the language that a capital loss can only be deducted on investment property, not on property held for personal use (#4 on this IRS sheet).
There seems to be some talk on whether a car is investment or personal property. (Though, number 1 says right on there, “Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.” That would make me think a car would fall in that category… So, I will absolutely ask again when tax time comes.)
The other thing about capital losses, though, is that the most you can claim in one year is $3,000… But if you lost more than $3,000 (which I did on the car – and I’m sure many game show winners do), at least you can carry the excess to the following year(s).
You may want to speak with multiple accountants until you find one who is sympathetic. This may mean talking with an independent accountant rather than one who works for a large corporation which may force everyone to err _way_ on the side of not pissing off the iRS. Given that you always planned to sell it, and you turned around and sold it right away (rather than drove around and sold it 4 months later), I think a strong argument can be made that it was an investment and not “personal use.” But I’m not a tax attorney, of course. Definitely hold onto all the relevant paperwork, but you knew that.
Thanks for the sound advice, Kevin. 🙂
Even at places like H&R block, there are differing opinions. For instance, last year I did my taxes while I was on vacation and the person in Ohio (who was new) wanted to be very conservative about almost everything.
Whereas, I still had to file state taxes once I got back home, since no one in the Ohio office was certified to do them. The tax person in California who’d been doing taxes forever was like “you should’ve written off this and this and this.”
So, yes, I will have to find the right person. I will start with the California guy who did my state taxes this year because he seemed very smart. But, I’m not married to H&R Block. So, we shall see how it goes at the beginning of 2014!
And thanks again!
You should be filing your taxes soon. I’m curious what your winnings after taxes comes out to.
Thanks for the comment, Ryan! I will most likely do a post addressing that. 🙂
Where have you read about getting cash takes the longest? I played (Yay!) but am still waiting on the check. The little prizes arrived in just a week. Just wondering.
Hmm, I’m sorry, Trebbie. I’m unsure where I heard that. Can’t remember if it was from the people at TPiR themselves or just hearsay. But if you haven’t gotten it within your 3 months after the shows airs, reach out to them. I found the people there to be really awesome. 🙂 (And congratulations!)
What is the tax on 87,000$+
A lot, I’m sure. I believe most of the same math still applies (just the numbers are different)…
Hi. I found your blog because I was curious about contestants on “The Price Is Right” and the taxes they pay, but I do have a question: You say you can turn down prizes if you choose, but does that extend to COMPONENTS of those prizes, as well? I ask because the guy today who won the Showcase won a trip to San Diego, and I was thinking, if I were still in LA (as I think he was), and I’d won that, I’d absolutely accept the hotel stay and the museum trip part of that prize, but I’d be happy to say, “Thanks, but no thanks,” to the plane trip and drive myself – especially gas prices the way they are now. Would he be allowed to do that? Or, like, he also won a kitchen set. Would he be able to say, “I’ll take the fridge and the stove, but don’t worry about the dishwasher?” Just curious.
Hi Tony! Sorry I didn’t get to this sooner. I know you reminded me on another post (thanks) and I answered there. But for anyone who doesn’t see that, unfortunately, the answer is I really don’t know. It’d be nice if they let you do that. But it may be too much of a headache for The Price is Right people. But maybe not. They are quite nice and helpful… Now I’m curious! So, if you find out, I’d love if you’d report back! 🙂
When I won a prize that included airfare and I lived right by it, they sent a limo and driver to get us and take us home. Yes, the prize value was adjusted on the tax bill.
Haha! Well, I suppose at least it’s nice that you got a limo! Woot, woot 😉
But it wasn’t from Price is Right, fyi……
my question is “if you live in a state other than California did you have to pay both California state tax and state tax for the state you live in?”
Great question, Rick! Sorry that I have no idea :-0
Really informative. I do feel bad for the winners, so excited but as you point out will end up paying a small fortune to take home their prize. Especially the trip winners, since as I learned from your blog trips can’t be transferred to another person.
The show, of course, doesn’t need to worry about the tax bill (though Who wants to be a millionaire DID inflate the prizes as a special showing to accommodate the tax bill) The contestants are going to jump wildly and excited during the taping of the episode.
As for winning a car. When TPIR was new that could really change a family’s fortune. My grandparents won a car in a church raffle and years later my grandmother mentioned that it was the turning point from poverty to prosperity.
Aw, what a nice story about your grandparents. Thanks, Troy!
Also, I’d rather win than not win haha. I still came out with a profit, and a really fun day/story! 🙂