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?
{ read the comments below or add one }
From what I have learned over my 64 yrs. of living and viewing many different game shows over the decades , , I have determined that all game shows are exploitative scams with loopholes designed to rip off all contestants.. just my humble opinion .. all game shows should go extinct.. forever
You Americans should know that, if you win any kind of a prize — cash or otherwise — on a game show, in a casino, or in a lottery anywhere in Canada, it is completely tax free! As well, any kind of inheritance that someone might receive as a beneficiary of a will and/or estate is also tax free in Canada.
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.
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.
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.
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!
So you ONLY clear $400,000 a year? My god! How do you clothe yourself? I’ll keep you in my prayers jackass.
Wow. I guess guess you would be ok with the government taking nearly half of your paycheck? Jealousy will get you nowhere. David earned his income by educating himself or starting a business. You were offered the same opportunity and chose not to do so. You people amaze me. I don’t earn nearly what he earns but I do make a comfortable income because I worked two jobs and paid my way through college. The government takes 30% of my income before I ever see it. When I see people like you cursing those of us who have worked hard to get where we are it kind of pisses me off. You don’t have a right too it, the government doesn’t have a right to a third or in David’s case half of it and I should be able to decide what charity I want to support or who I want to support with it. I do not mind paying my fair share but I don’t think you should get a free ride on my nickel due to my ambition.
I don’t see jealousy in his comment. I see someone responding to another person whining about investing in our country while making a substantial amount of money as a result of the people before him making investments in our country.
Our country is decaying precisely because we have become so self absorbed with no thought as to what is the best course of action for the country as a whole. There will be a day not too far in the distant future where he will be pining for the days of paying a 42% effective income tax rate on a $700,000/year income job.
The government created the monetary system and the dollar has no value without the government. The government has every right to do what it wants to with regard to the system. You can vote and voice your opinion, but at the end of the day, those are the facts.
I don’t get jealous as I have more money than I need to do the things I want. I am happy for people who “make it”, but at the same time, we are headed towards an economic collapse if we continue on this path of selfishness and division and not holding our elected officials accountable for not solving our problems.
When I see people like you thinking you know everything it kinda pisses me off. You ASSUME everybody is offered the same opportunity as you but chose not to do so. Boy, “you people amaze me) you do not have a clue. I bet the majority of people work HARDER than you and make less. Not because they dont work hard, and all for DIFFERENT reasons. Anything from lack of those opportunities, poor education,
circumstances out of their control, no family support, or maybe they simply made poor decisions, unlesss they chose fortune teller nobody can forsee the future and know that their choice will work out for them. Some times people fall into careers, whether it be through family friends or whatever and don’t realize they won’t advance much until their hands are tied and its too late to start over. I hate people who put everybody into one group, the “they” group. and then expect their one opinion to apply to “them” all. Get a clue!
You could write off a charitable donation to me!!
Fred, you could write off a charitable donation to me!!
There are people who make 1/4 of what you do and have to claw their way through surviving in this country. And while I agree that the government shouldn’t just take large sums of money (not until they start TRULY putting that money back into the community), you have no merit to sit and act like it’s severely destroying your way of life and your ability to survive. You currently sit in the lap of luxury with the amount of money you take home. Meanwhile there are millions of equally or more *hard working* individuals who struggle to scrape up enough for rent every month, or have to starve so their kids can eat. And often times, their financial struggles are due to factors that are so beyond their control. And they’ll still have to pay some amount of taxes. So yes, while loosing the money you do sucks, there are millions and millions of people that WISH they could sit on even a fraction of what you earn. That would be enough to be life changing. And the funny thing is, that’s why a lot of people go on things like these game shows. Because they’re in a pinch for cash and are looking for financial help *somewhere*. To you, only being able to take home $400,000 after your taxes and being stuck in this high tax bracket is ultimately worse. But think of someone who’s going on this *one time* game show, making plans with this big sum of money, picturing how they can turn their life around when they win. They can pay their bills, maybe pay off some debt that’s destroying them right about now, maybe fix up or replace the 1995 Toyota that’s so beat up it’s a danger to the road. And then they win. And then they’re so excited, only to not only receive a *severely* cut sum of money, but to now also be thrown into a higher tax bracket they may not be able to afford to pay for. While I understand your frustration in having to lose such a chunk of your money, this is one of those frustrating cases where the rich try to make it seem like somehow they have it worse off than the poor. Like they genuinely have something to seriously seriously complain about when realistically it’s almost just an inconvenience for you. When so many people would graciously deal with the kind of struggle you have, because even with tax, your earnings almost guarantee security in this economy.
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!
Hang on to that willpower Caroline. Keep up that discipline and you’ll be financially independent sooner rather than later!
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.
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.
The IRS clips all winnings at the rate of 40 % of the retail value.
Good to know DC. At least you won’t end up PAYING out of pocket for your winnings if you win a product!
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.
That’s just wrong. When I won $53,000 in prizes on a show, I did my homework. Winnings are taxed as earned income, and taxed at the FAIR MARKET VALUE of the prizes. So, I went shopping. The 2WD Chevy Blazer 4-door I won, was the worst possible combination (tuners did not want a 4-door, and in the snow belt, drivers did not want a 2WD), so the local Chevy dealer valued the car at $6000 LESS than the retail value, and signed a document saying that. I went to stores all over town, and every single one of them was willing to sign a document testifying that the price they quoted me was the price at which the item sells. My $53,000 liability dropped to just over $35,000. Sure, it was a bit of work, but I came out way ahead of the game. Anyone who whines about problems with winning on a television show, and says it isn’t worth it, is a moron.
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. 🙂
You can still win big. The take home money just isn’t as much as what they claim to be though!
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
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 🙂
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!
How is “cash value” determined? wholesale, MSRP? Is this negotiable?
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.
It’s “fair market value”. The price you would pay if you purchased the item brand new.
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.
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.