Are raffle winners required to pay federal tax on their prizes?
Raffles are considered to be games of chance. Any prize would be considered to be income to the recipient and must be declared as income. To be on the safe side, the school must require winners of prizes valued at $600 or more to complete a Form W-9. The school must also complete Form W-2G and give it to the prizewinner at the time of the event. (It is strongly recommended that a school not pay a winner’s tax withholding, as determining the winner’ tax liability is a complex and time-consuming process.) A winner receives copies B, C, and 2 of this form, while the school retains the other three copies. Copy A of Form W2-G and Form 1096 must be filed with the IRS by February 28th of the year after the raffle prize is awarded. Should the prize be valued at more than $5,000, the school must withhold 28 percent of the item’s fair market value, minus the cost of the raffle ticket; this amount must be collected before the prize is transferred. Of course, if a winner’s tax bracket is above or
