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Winner-Take-All: Sweepstakes and Raffle Taxes You Need to Know

Reality check: winning sweepstakes may seem like a complete dream, but it is not just about sitting pretty on cloud nine. After the joy and excitement of winning in a lottery, winners are also subject to the duty of paying the corresponding tax, regardless if it’s a jackpot in a raffle giveaway or even just complimentary prizes. This is a law that every winner must abide by, with no exceptions.  

Read on for a guide to your tax obligations when you win a big prize. 

The 600-Dollar Basis 

All winnings have their due taxes, regardless of their value. But if you win anything above $600, you will receive a 1099-MISC form from the sweepstakes company and the Internal Revenue Service. Think of this document as a declaration of winnings for transparency purposes, which must be filled up regardless of the circumstances. 

Merchandise prizes are also taxable, meaning a Rolex or a Jaguar won in a raffle must also be declared in cash. The tax, of course, is quoted the same way the IRS computes ordinary income. Similar to paychecks, deductions are then transferred as your social security benefits. 

If you win an unexpected prize, it can boost you into a higher tax bracket, leading to potential problems in the future.  

State Exemptions

Here comes good news for any winner who currently lives in select American states. While federal taxes still stand for all winners, there is no need to settle the state tax in some locations. Alaska, California, Florida, Nevada, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming are some states that do not demand state tax settlements. So if you live in these states or the sweepstakes or raffle you entered are based in these states, you have one less thing to worry about.

Withholding Taxes vs. Paying Taxes 

Tax settlement after winning a prize also depends on circumstances. For cash prizes above $5000, sponsors are to allocate 25 percent to federal taxes and withhold it from the amount given to the winner. But with non-cash prizes of more than $5000 in value, winners will have to pay cash to the sponsors to cover the tax. 

Other Tax Conditions 

Winnings do not always come in the form of cash prizes. Material things and even properties could also be at stake. Car winners are automatically subject to federal and state taxes, with conditions made that a standard must be settled with one-third of its entire value. A high insurance premium is also mandated should you want to win a luxury car.

For those who have won a new house, the painful income, federal and state taxes are just lurking around the corner. Lastly, the term “there is no such thing as free lunch” can be applied even after winning a free vacation. Your free weekend getaway must be declared in its free-market value, in compliance with taxes. 


Sweepstake and lottery taxes vary, with many factors affecting how much you are obliged to pay. For one, the state in which you live is a significant factor. In some situations, taxes can be a pretty big burden, too. But with proper knowledge about the rules, you may settle your taxes very easily. 

Make your dream a reality and place another bet with Fallen Valor for a chance to win a car sweepstake and other amazing prizes by simply donating or buying our merchandise. Remember, every five dollars spent with us is equivalent to a raffle ticket for our giveaways.