Understanding Taxes on Sweepstakes Winnings
Winning a sweepstakes is exciting, but winning a sweepstakes has tax consequences. Sweepstakes winnings are considered taxable income by the IRS in the United States and must be reported on your tax return.
Federal Taxes
The federal sweepstakes winnings tax is different based on your total income and tax bracket. The IRS treats prizes as ordinary income. The payer must withhold 24% for federal taxes Form W-2G Instructions on prizes of more than $5,000. The withholding is not your entire tax liability if you are in a higher tax bracket, or you may be able to get a refund if you are in a lower bracket.
State Taxes
In addition to federal taxes, your state of residence also sweeps taxes on sweepstakes winnings. State tax rates range as far apart as 0% for Texas and Florida up to over 10% for California and New York. Your state's tax legislation or a tax expert must be consulted in order to ascertain the right rate.
Using the Calculator
This tax estimator helps you gauge taxes on your winnings by letting you input prize value, federal tax rate, and state tax rate. Federal tax rate defaults to 24%, which is the standard withholding rate for a large prize, but you may input your marginal tax rate if you want to estimate more closely.
Remember that this calculator provides an approximation and does not account for all tax scenarios. For precise tax calculation, hire a tax professional.