Taxes Q&A

When To Pay Taxes On Your Winnings

Q1: Do I have to pay taxes if I win a sweepstakes or free lotto?
A: Yes, in most countries including the U.S., any prize won in a sweepstakes, lottery, or giveaway — even if it was free to enter — is considered taxable income. It doesn’t matter if you didn’t pay to play; the value of your prize is still subject to tax.

Q2: What kind of taxes do I have to pay on my winnings?
A: In the United States, you must pay federal income tax on the fair market value of your prize. Depending on where you live, you may also owe state and local taxes. Some states don’t tax sweepstakes winnings, while others do. It’s important to check your local laws.

Q3: Will the sweepstakes company withhold taxes for me?
A: Sometimes. If your prize is worth more than $600, most legitimate U.S.-based companies will report your winnings to the IRS using a Form 1099-MISC or 1099-NEC. In some cases, especially with large cash prizes, they may also withhold a portion of the winnings for taxes upfront — typically 24% for federal tax. However, this doesn’t mean you’re fully covered. You may still owe more when you file your tax return.

Q4: How will I know how much to report on my taxes?
A: The company awarding the prize should send you a Form 1099 if the value is over $600. This form will state the total value of your prize and is also sent to the IRS. If you don’t receive a form, you’re still legally required to report the fair market value of the prize on your tax return.

Q5: What if I win a non-cash prize like a car or vacation?
A: You are taxed on the fair market value of the prize. For example, if you win a trip worth $5,000, you must report $5,000 as income. You might have to pay taxes on that amount even though you didn’t receive cash. This is one reason some winners decline prizes — they can’t afford the tax bill.

Q6: Are international winners taxed the same way?
A: U.S. sweepstakes companies may withhold 30% for federal taxes from non-resident alien winners, depending on tax treaties between the U.S. and the winner’s home country. Winners outside the U.S. should consult a local tax advisor to determine what they owe in their country.

Q7: What if the sweepstakes is from a website outside the U.S.?
A: If you’re a U.S. taxpayer, you’re required to report worldwide income, including prizes won internationally. You may also have additional reporting requirements for foreign assets or income.

Q8: How can I prepare for the taxes I’ll owe?
A: Before accepting a prize, ask about its value and any tax documents you’ll receive. Consider setting aside money (typically 24–37% depending on your tax bracket) to cover taxes. Consulting a tax professional can help avoid surprises at tax time.