Guide: Awarding Your Prize - Tax Information

{# `editor_content` obfuscates mail addresses, marks links nofollow and fixes video embeds. This block is what crawlers and readers without JavaScript see, so it is exactly the markup that needs it. `nowrap` because the wrapper is written here. #}

PLEASE NOTE: HeroX is not a certified tax attorney, advisor, or accountant. The information below is simply a guide from what we've been able to collect via web results. Please consult a licensed professional before awarding your prize money.

SUMMARY

  • Where the prize money exceeds $600.00, the organization awarding the prize must file a 1099-Misc to report the award to the IRS.
  • If the prize money winner is an employee of the organization, prize winnings are reported on the employee's W-2
  • No tax withholding on prize winners in US
  • Form W-8BEN is filed by the Foreign National prize winner to report the prize award and the withholding to the IRS.

AMOUNT OF WINNINGS

  • The first consideration is the amount of total winnings in the prize money, and how much of the winnings goes to an individual. It is the individual taxpayers responsibility to report any prizes won over $50.00 in value. No reporting by the prize awarding organization will be required under $600.00 in total prizes to an individual. The fair market value of the prize must be entered into the winner's own tax reporting form 1040 on line 21.
  • Winnings over $600.00 trigger a form 1099-Misc tax reporting by the organization awarding the prize. This form is filed to the IRS by the organization awarding the prize to the winner. The instructions for the 2017 1099-Misc form is here. When the prize money is provided in the form of an employee bonus, it is reported on the W-2 as income. There are instances where emloyees do receive a 1099-Misc, and reporting would follow the same procedure for that form.

NUMBER OF WINNERS

  • Where there is more than one winner of prize money, such as a team competition, there are other forms that the winners must complete so that a single team player is not responsible for the entire tax burden. Again, the individual teammates would have to self-report this additional income from winning a prize to the IRS.
  • Where one teammate receives the total prize, the 1099- Misc will be filed as income to the person for the tax burden. The winner should then file form 1096, with copies of the 1099 filed by the team leader.
  • This means that if the prize money exceeds $600.00, your clients can file a single 1099- Misc to a team leader for the entire competition prize, and the team will report their portion of the prize winnings on personal tax forms using the 1099 and 1096 processes. However, the organization awarding the prize can elect to file 1099s for each team member for their portion of the prize money.

CITIZENSHIP FOR TAX PURPOSES

  • U.S. Citizens: No tax withholding on prize winners in US. When the individual files personal income taxes, the prize money will show up on a 1099-Misc if over $600.00, and will be filed with the return. Prize money of $50.00 or more is self-reported on 1040 line 21. A W-9 form must be filled out by the winner and on file with the company awarding the prize. This form provides all of the informaiton for sending a 1099-Misc to awardees with prizes exceeding $600.00. In the event that an employee of the sponsoring organization is the winner, the prize(s) will need to be reported on the employee's W-2.
  • Non-U.S. citizen: when the prize is awarded to a non-citizen, there is a two step process that must be followed. First, 30% of the prize must be withheld for taxes. Second, the organization must fill out the IRS Form 1042, reporting U.S. Source of Income by Foreign Persons. The IRS Form W-8BEN is filed by the Foreign national prize winner to report the amount received and the 30% withholding in the prize money.
  • Please note that as of April 1, 2018 HeroX will require a US tax document to be completed and accordingly will deduct withholding tax on prizes paid to international winners valued greater than $600. The withholding tax is 30% unless your country has a tax treaty reducing the amount which will then be deducted in accordance with the tax form submitted.

STATUS OF ORGANIZATION THAT AWARDS THE PRIZES

  • The 1099-Misc is used to report prize winnings when, "Payments are made in the course of your trade or business. Personal Payments are not reportable."
  • On this point particularly, you may want to seek the advice of a licensed attorney or tax professional. Individuals awarding prize money may not be required to report the amount of the prize to the IRS. This does not relieve the burden on the recipient to report the income received, if it exceeds $50.00

LINKS TO REFERENCED FORMS