The Surprising Truth About Winning Big on a Game Show

by Emily Guy Birken · 21 comments

One of my goals in life is to be a contestant on Jeopardy.

I don’t have any illusions about being the next Ken Jennings, but I do have a very good memory for trivia — to the point where my husband refuses to play Trivial Pursuit with me anymore. Pair my status as a walking encyclopedia of useless information with my general lack of stage fright (teaching high school cured me of that), and I think I could potentially clean up on Jeopardy. Well, as long as there weren’t too many sports questions.

Even though visions of Alex Trebek and Daily Doubles dance in my head, I do know that winning Jeopardy will never be my path to riches. Because even if I were able to pull of the kind of streak that Ken Jennings did, I wouldn’t be able to take home all the money I earned.

Here’s the truth about winning big on a game show — the side of winning they don’t tell the viewers watching at home:

1. You owe taxes on your winnings

Not only does the federal government want a piece of your game show prize check, but so does your state of residence and the state where the game show was filmed. While you can receive a credit on your taxes in your state of residence (based on the taxes you paid in the filming state), you’ll still likely see a hefty bite taken out of your giant check.

For example, Jeopardy is filmed in California, where the non-resident income tax is 10%. I live in Indiana, where I pay 3.4% tax on income. If I were to win big on Jeopardy, I would have to pay the 10% state tax to California, but only get a credit for 3.4% in my home state. Ouch.

In addition to having to pay income tax at the federal and state level on your winnings, you also might be pushed into a higher tax bracket, meaning you’ll owe more money in April than you’re used to.

Savvy game show winners elect to have taxes deducted from their winnings, although that doesn’t necessarily take care of every potential problem. For instance, your tax return is going to be more complicated after a win, so you might need to pay for help filing it correctly.

2. Non-cash prizes are taxed, too

If you’re tax-savvy, winning money is fairly straightforward. You can elect to deduct what you owe from your winnings, and go along your merry way. But what if you win a new car, a trip to Machu Picchu, or a lifetime supply of chocolate pudding? The IRS considers those to be earnings, too, and you have to pay taxes on the official retail value.

There are a couple of problems with this. First, if you don’t also win cash from the game show, you might not have the money to pay taxes on your winnings. So you’re faced with the option of either walking away from your prize, or scrambling to pay the tax bill on your new car.

The second issue has to do with the official retail value. The value according to the game show is often inflated compared to what you’d pay for the item if you went shopping for it. And a higher official retail value means a higher tax bill.

3. You can’t opt for cash-value instead of prizes

You might think an easy solution would be to request the cash value of prizes instead — but game shows won’t let you do that. You’re entitled to the exact prize you won, or nothing.

But of course, the rules aren’t the same in reverse. If the item you won isn’t available for any reason, the game show will give you cash instead.

The Bottom Line

Just like casinos, game shows are stacked in favor of the house.

If you dream of showing off your trivia knowledge, your ability to guess the prices of retail items, or your hangman-playing skills, plan on doing it for the experience rather than what you could win. You might find your winnings are more of a headache than they are worth.

Did this information surprise you? What game show do you dream of being on?

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{ 21 comments… read them below or add one }

Marie @ My Personal Finance Journey June 2, 2014 at 7:51 am

I know about this rule of the game show: You can’t opt for cash-value instead of prizes. 10 years ago, we lived in a big city and I had a chance to joined on a game show, before the game started, all the rules and regulations of the show were explained clearly to us.

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David Ning June 2, 2014 at 4:07 pm

It’s ethical of them to at least explain everything to you ahead of time. I heard Oprah’s last season on broadcast TV were giving things out like crazy and they even covered the tax part, which was awesome.

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P Weiss June 2, 2014 at 10:49 am

How is “cash value” determined? wholesale, MSRP? Is this negotiable?

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David Ning June 2, 2014 at 4:05 pm

It’s probably always going to be the highest amount they can think of, most likely the MSRP. They do it not to fleece you, but to make it seem like their total prizes sum up to the biggest number possible for marketing reasons.

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Fred June 7, 2014 at 2:27 pm

It’s “fair market value”. The price you would pay if you purchased the item brand new.

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David Ning June 2, 2014 at 4:11 pm

I always pondered about winning a car in these game shows. If I accept the car, which is unlikely to be a model I’d be totally in love, I would pay tax on full retail value and then have to sell it immediately for probably less than half of the inflated amount. If I end up taking the car, I would have to drive a car I don’t like (whether it’s the options, the model or even the color).

So I can choose to not be THAT far ahead financially in the former in exchange for a ton of my time selling the car. Or I can choose to be grumpy driving a car I don’t like in the latter – and all the while everybody is telling me how lucky I am to win a car!

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constance June 3, 2014 at 1:58 am

I’m one of those unlucky souls who are constantly described as shy and I would probably freeze on stage regardless of whether I knew the answers or not

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David Ning June 6, 2014 at 10:24 am

Ha count me as the second person to freeze on stage. If you and I were in the same show the episode would probably be pretty boring :)

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Mark Ross @ Money Saving Dude June 5, 2014 at 9:24 am

Wow. I didn’t know all about that. It’s hard to win a game show, and now it’s also hard to get and manage your winnings. I was even hoping that I could join Jeopardy or Wheel of Fortune. Just kidding. :)

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David Ning June 6, 2014 at 10:24 am

You can still win big. The take home money just isn’t as much as what they claim to be though!

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DC June 5, 2014 at 9:57 am

The IRS clips all winnings at the rate of 40 % of the retail value.

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David Ning June 6, 2014 at 10:25 am

Good to know DC. At least you won’t end up PAYING out of pocket for your winnings if you win a product!

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Fred June 7, 2014 at 2:25 pm

Where did you get the 40% number? IRS will tax you on the “fair market value” of your winnings. They don’t use any kind of arbitrary write-down.

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Property Marbella June 6, 2014 at 2:05 am

Here in Spain, as in most European countries it is 20 per cent tax on all kinds of lottery Jeperdi TV, football, horse gambling winnings, etc. no matter in which country you have won money. You pay tax in the country in which the profits are paid out.

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David Ning June 6, 2014 at 10:30 am

It would be so much easier if the government will just set a standard tax rate on the winnings. This way they can just take it off the top when they distribute the money to the winner and everything will be settled immediately.

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caroline June 6, 2014 at 6:30 am

I’d love to win a car of any kind, assuming it was new and under warranty. Then we could sell my husband’s reliable and perfectly-okay-but-ageing VW and have the new one instead, with whatever we could get for the older car in savings. Since we flatly refuse to get into debt over buying cars, that’s the only way it’s going to happen!

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David Ning June 6, 2014 at 10:28 am

Hang on to that willpower Caroline. Keep up that discipline and you’ll be financially independent sooner rather than later!

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Fred June 7, 2014 at 2:30 pm

If you think winning a prize makes you pay high income taxes, just try earning a high wage at work. Last year I paid $300,000 in income taxes on $700,000 of wages. And that doesn’t include social security or medicare taxes.

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David Ning June 7, 2014 at 8:33 pm

Hey, at least you aren’t in the highest earning bracket in California because you could be paying more than half to the tax man!

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Kate June 12, 2014 at 8:48 am

No, it didn’t surprise me. I have been playing the lottery for nearly 20 years and have paid close attention to this. I also used to work for a firm which had a practice in assisting lottery winners, who are generally babes in the woods vis-à-vis sums of cash larger than a couple of thousand dollars.

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Grinch June 12, 2014 at 5:50 pm

You don’t have to be a big prize winner either. I won 2 tickets to a roller derby match from a radio station and they handed me a 1099. Fred is right, the cash value is based on fair market value. Interestingly, if you have lottery or gambling winnings, you can reduce that income by the amount of losses you had that year. So if you play, save your losing tickets for the day when you land the big one. Or spend a few minutes outside the local 7-11 picking up losing tickets off the ground.

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