Non-cash gambling prizes, such as cars, trips, or other valuable items, must be reported on Form W-2G (Certain Gambling Winnings) at their fair market value (FMV). Here’s what you need to know:
Reporting Non-Cash Prizes
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Determine Fair Market Value (FMV):
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The FMV is the retail value of the prize when awarded.
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Use the manufacturer’s suggested retail price (MSRP) or another reasonable equivalent.
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Keep documentation of how the FMV was determined.
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Include in Box 1 (Gross Winnings):
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Report the FMV of the non-cash prize in Box 1 of Form W-2G.
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Federal Income Tax Withholding:
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If the prize’s value exceeds the IRS withholding threshold, federal income tax must be withheld at 24%.
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Winners can pay the tax in cash or reduce the prize’s value by that amount before claiming it.
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Social Security and Medicare Taxes:
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These do not apply to gambling winnings reported on Form W-2G.
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Threshold for Reporting
You must issue Form W-2G for non-cash gambling prizes if:
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The prize’s FMV exceeds $600, and
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The prize is worth at least 300 times the wager.
Special Considerations
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Withholding on Non-Cash Prizes: If the winner cannot cover the withholding upfront, the prize may need to be sold (in part) to cover taxes.
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State Tax Reporting: State rules may also require reporting and withholding.
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Multiple Winners: If a prize goes to multiple people, divide the FMV proportionally and issue separate W-2G forms.
Filing Help
Reporting gambling winnings can be complex. That’s why we provide W-2G filing software to simplify the process. Our software generates Form W-2G, calculates withholding, and ensures compliance with IRS rules.
Need full-service filing? We can also e-file on your behalf so you stay compliant and avoid penalties.