Can You Afford Free? Taxes Spoil the Game Show Win

You've seen the game shows where contestants hop around the stage excited beyond belief at the possibility of winning cash and prizes. Most notably, among shows that give away merchandise is The Price Is Right (TPIR). Contestants who win the big prize, known as the Showcase Showdown, can scoop up tens of thousands of dollars in trips, appliances, sports and recreation equipment, cars, etc. What you don't see, according to some of the winners, is when the other shoe drops. That is, the tax shoe  and it drops fast.
Win the prize, pay the tax piper
Most of us know if we win a cash prize, there are taxes to pay. Big prizes mean big taxes. But many game show contestants don't realize when they win merchandise, there's also tax to pay, and you might not get out the door with your prize until some of that tax is paid. 
When the prize is merchandise or travel  a washer/dryer, a new car, a cruise  it's a different ball game. Just ask Andrea Schwartz, who is warning unsuspecting game show contestants. 
Last year, Schwartz was thrilled to win $33,000 in prizes on TPIR. The list of goodies included a pool table, a shuffleboard table, and a red Mazda2. After the show, she was whisked backstage for a dose of reality  the tax issues. 
TPIR is filmed in California. Schwartz found out the hard way that when you win prizes in the Golden State, you don't get to wait until you file your tax return to pay the taxes. If you want the prize, you pay right then and there, said Schwartz.
In an interview with Yahoo! Shine, she told reporters, "Yeah, you don't just drive off the back lot with the car. After the show, you fill out some paperwork and basically sign your life away. You say that you're going to pay the taxes on it. If you win in California, you have to actually pay the California state income tax ahead of time." 
When it does come time to file your tax return for the year, there will be additional forms to fill out, and the value of the prizes will be added to your income. And that could push you into a higher marginal tax bracket for part of those winnings. 
For Schwartz, before leaving TPIR, getting her prizes released to her meant she had to pay $2,500 in taxes. Fortunately, she had also won cash of $1,200 playing TPIR's Plinko game and was able to use that money to pay the taxes. That's not exactly how she envisioned spending her winnings, but it did help.
The AICPA told an ABC News reporter that contestants generally have to file a tax return in the state where the prizes were won  as Schwartz said  and then file again in their home state if their state charges personal income tax. They do get to claim a tax credit in their home state for the taxes paid elsewhere.
There's more . . . 
On TPIR (and possibly other shows that give away merchandise), the value of the merchandise you pay tax on  for example, on the Mazda2 won by Schwartz  isn't the same as what it might be at a car dealership, especially after negotiating. TPIR winners pay tax on the manufacturer's suggested retail price (MSRP), which is generally a great deal higher than one would pay on the free market.  
TPIR will only ship your prizes to your home. If you want to have an item shipped to an alternate address, you must pay that cost. Schwartz won a pool table, but she lives in an apartment where there wasn't room for such a large prize. Eventually, to pay the taxes on her winnings, she sold the pool table and the shuffleboard table. Their combined value was listed as $14,000. That's the amount she paid tax on. But she was only able to sell the items on Craigslist for $4,500. What the heck  at least it paid the bill!
Another TPIR winner told Consumerist, "I won $57,069 worth of items. I had to pay around $17,000 or $20,000 in taxes, but I'm not 100 percent on that, I tried not to pay attention."
He and Schwartz both affirm that many contestants end up declining their prizes because of taxes or for other reasons. 
Can you ask for the cash value instead of the prize? 
Not generally, unless there's a problem with the prize. For example, the man who won merchandise worth $57,069 was told one of his prizes wouldn't be available for shipping for quite some time, so he was offered cash and took it. 
The bottom line is, glitz isn't always what it appears. Contestants are often disappointed at the net value after the tax man is paid. Such is our tax system, but overall, they still win . . . something. 
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