Federal Income Tax Withholding: Charity Game Ticket Prizes
With the introduction of progressive charity game tickets, prizes have the potential to be $600 or greater. It is imperative that organizations selling charity game tickets be aware of the federal income tax withholding requirements. The following was reviewed by the IRS on November 23, 2004.
IDENTIFICATION: The winner of a single charity game ticket prize of $600 or more must provide the organization with proper identification. Two types of identification (e.g. driver license, social security card, voter registration card, etc.) should be furnished by the winner to verify his or her name, address, and social security number (SSN).
W-2G: If an organization awards a single charity game ticket prize of $600 or more, they must file Form W-2G.
WITHHOLDING: It is important that organizations understand the difference between "regular gambling withholding" and "backup withholding" of federal income tax.
The "regular gambling withholding" rate is 25% of a prize.
- If an organization awards a single charity game ticket prize with a value between $600 and $5,000 and the prize winner provides proper identification, no withholding is required.
- If the prize amount is more than $5,000, the organization must obtain proper identification from the winner (as described above) and withhold 25% of the prize. If the organization is unable to obtain proper identification, they must withhold the higher "backup withholding."
The "backup withholding" rate is 28% of a prize.
- If an organization awards a single charity game ticket prize of $600 or greater and the prize winner fails to provide proper identification, the organization must retain the "backup withholding of 28%."
EXAMPLE: Organization XYZ paid a prize of $1,300. The winner would only give his name as J. Doe and did not provide proper identification. Organization XYZ should collect backup withholding of $364 ($1,300 x 28%), pay the winner $936 ($1,300 - 364), and file Form W-2G. If the winner had provided XYZ with proper identification (including social security number), no withholding would be required; however, the organization would still be required to file Form W-2G.
SINGLE PRIZE: The IRS considers all prizes won by one wager a single prize.
EXAMPLE: In Rock & Rollover when the rollover is won, the $250 diamond prize plus the $150 bonus prize plus the rollover jackpot are totaled and considered a single prize.
LIABILITY: The organization is liable for paying the applicable backup withholding to the IRS, regardless of whether or not it is collected from the prize winner. The best time to collect backup withholding is before the prize is paid! Organizations must report withholdings on Form 945 by January 31 of the following year.
|Employees of the Michigan Lottery are not agents of the IRS nor are they tax consultants. Each organization should contact a licensed professional or the IRS for more information. To contact the IRS Exempt Organization Unit, call 877-829-5500. To receive a copy of Publication 3079 or other tax publications or forms, call 1-800-829-3676 (FORM) or go to the IRS website at www.irs.gov.|