Guest Author - Heather Farr

Generally, the prize giver is supposed to withhold taxes, but unfortunately, most of them do not do this. This leaves it up to you to report your prize earnings on your taxes as income received. If you have received a prize, the sponsor of the prize will send you a 1099-M. You will use that to determine what amount of taxes you have to pay on your prize. It is always a good idea to assume about 35% of the total winnings is what the IRS will get. You are wise to set this amount aside…so that when you file your taxes, you will not be scrambling to come up with the required amount of taxes to pay in. In the event that you saved more than you need to pay in, it is a bonus for you :-)

However, if you determine that the amount of your prize is not accurately represented (in their favor) on the 1099, then you will have some homework to do to get it all straightened out before your taxes are due. Each contest will mention the value of the prizes available.

For example, if you win a trip and they (the prize giver) send you 1099’s that claim the prize to be valued at $20,000.00. However, you find that the trip is really only valued at $15,000.00. You need to contact the prize giver and tell them that you do not agree with the amount on the 1099 and that you have receipts to contest the amount they claim.

If you are unable to get a corrected 1099 from the prize giver then you will need to contact the IRS at (800) 829-1040 early in the morning, when you have a better chance of reaching them at that time. Tell them that you received a 1099 and that you disagree with the amount. You will then need to tell them that you have tried to resolve the situation but have been unable to do so satisfactorily. Then you can tell them that you were advised to have IRS complete a Form 4598, “Form W-2 or 1099 Not Received or Incorrect.” Have all the necessary documentation (receipts and how you got your figures) at hand to prove your case. The IRS will then contact the prize giver and you will receive a corrected 1099.

Remember, keeping receipts is a good idea-even, if you do not think you will need them. Because some day you might be faced with a situation like the above mentioned and if you have your receipts, the whole ordeal will be a lot easier to deal with and a bit more stress free.