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  Old  March 25th, 2010, 8:54am     #1
bomar97 is offline
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Tax free sweeps??
I've seen some sweeps where they offer so much in cash towards paying the taxes on the prize, which is nice..
But I was wondering if it would be a burden to companies if they just paid the tax themselves so the winner wouldn't worry about stepping up into a different tax bracket should they win a larger prize.
Something like companies do when they give you a tax free bonus.
I don't know the legalities or costs associated with it.. but if I could win a $100,000 prize plus $10,000 to cover taxes or a $90,000 prize tax free.. I couldn't afford to enter for the $100,000 prize unless it was cash.. but I would (if I could use the prize) go for the $90,000 prize tax free!!!
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  Old  March 25th, 2010, 9:09am     #2
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What you pay in taxes is based on your income. They can't know what that is in advance. Sales taxes would be different but income tax is different for every one.

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  Old  March 25th, 2010, 9:10am     #3
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Even if you win 100,000 plus 10,000 to cover the taxes, then you have to pay taxes on 110,000. If you win 90,000 "tax free", you still have to claim it on your income taxes, and pay tax then. I don't think there is any way that you could avoid paying taxes altogether. I'm sure Uncle Sam has covered any loopholes LOL.
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  Old  March 25th, 2010, 9:25am     #4
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Quote:
Originally Posted by jooliepoolie View Post
Even if you win 100,000 plus 10,000 to cover the taxes, then you have to pay taxes on 110,000. If you win 90,000 "tax free", you still have to claim it on your income taxes, and pay tax then. I don't think there is any way that you could avoid paying taxes altogether. I'm sure Uncle Sam has covered any loopholes LOL.
No.. if the corporate pays the taxes on the win, you don't have to claim it.. this is what many companies do when they give bonuses.. it's free money to you.. the company pays the gov't the tax on their side.
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  Old  March 25th, 2010, 10:08am     #5
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I think you need to talk to a tax pro about it.
Just taking a passing guess at this, but if the company/sponsor offers a certain amount to pay the taxes with, the only way that the winner would not be taxed on that certain amount "earmarked" for taxes, would be if the company/sponsor paid that "earmarked" amount DIRECTLY to the IRS on the winner's behalf.
If the sponsor sends the winner the "earmarked" cash for the purposes of paying taxes, then that "earmarked" amount is in the winner's possession, and would therefore qualify as taxable income.


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  Old  March 25th, 2010, 10:37am     #6
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Quote:
Originally Posted by bomar97 View Post
No.. if the corporate pays the taxes on the win, you don't have to claim it.. this is what many companies do when they give bonuses.. it's free money to you.. the company pays the gov't the tax on their side.
False. It is illegal to assign the tax burdon of a sweepstakes win or prize to anyone but the winner (way too much opportunity for abuse otherwise). Some companies will send you an additional check to cover the taxes on the win, which is fine, but you then also have to pay taxes on that check. If you're lucky, the company will then send you a check to cover the taxes on the check they sent you to cover the taxes on the prize.... keeping up until you owe essentially nothing

When you see a prize (like PCH) of $1,000,000 tax free... it means that they'll give you $1,452,212 (or whatever it ends up being) so that you'll bank $1,000,000 after taxes... its not really tax free, it just ends up that way sorta.
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  Old  March 25th, 2010, 11:34am     #7
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I don't think there's such a thing as a tax-free bonus. If your employer gives you money, then you're going to owe taxes at some point on it. Like skarydrunkguy said above, maybe they give you $1333 so you can have $1000 "tax free" (with the extra $333 going toward the tax) but that's just a math trick, not that you escaped from owing taxes on the money.
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  Old  March 25th, 2010, 12:01pm     #8
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The only 'tax free bonus' that I know of is when a military member happens to be overseas in an area where they are declared to be exempt from taxes, and that member re-enlists and gets a bonus for doing so. So, while there /are/ tax free bonuses, not that many people are entitled to them, and even fewer on here.

Yeah, I know, not what the OP was asking, but I had to reply tongue in cheek when someone said something about there being no such thing as a tax free bonus.
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  Old  March 25th, 2010, 1:00pm     #9
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bomar your understanding of this is wrong. You would indeed owe taxes even on the portion of your win that is designated as "money to pay the taxes". It sucks, I know, but that's our government for you.

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  Old  March 25th, 2010, 2:08pm     #10
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Maybe this idea only works for companies and employees..

Cover their taxes
Some companies absorb the cost of employees' taxes on bonuses. And if you're giving a taxable non-cash award, such as a car, paying the tax definitely enhances the item's value. However, it's not as simple as paying the amount the employee would be taxed; there's a special calculation called a "gross-up," which determines the amount the employer must pay.
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  Old  March 25th, 2010, 2:18pm     #11
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Unhappy Taxes
Paraphrasing an old saw: nothing is so sure except death and taxes. You always have to pay for your gain. Whether 90k or 100k, you have to pay on any monies you receive from the payer, regardless of what the payment is titled.

Last edited by buddyspa; March 25th, 2010 at 8:05pm.
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  Old  March 25th, 2010, 3:06pm     #12
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Companies don't assume the taxes of the employee. If they want to give you a bonus of $500 they might pay you $700 then after tax result to you is $500 (for example) Even though you have $500 in cash...you'll pay taxes on the $700. And certainly its better than getting a bonus of $500 and only receiving cash of $400 ish.

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  Old  March 25th, 2010, 3:35pm     #13
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Every company I have ever worked for adds any bonus or freebie to my paycheck so I definitely have to pay taxes on it. Even a $5 McDonald's card got added!
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  Old  March 25th, 2010, 3:57pm     #14
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Company/Employee relationships are a very different thing than other tax relationships. You sign a W-4 with a company that lists your number of exemptions. They know how much you earn from them in a given year. They then use that information to determine how much to withold from your paycheck using government issued tax tables. Using this information, they may withold for taxes only 10% of the pay of a minimum wage earner with 2 dependents while a single manager with a $100,000 income may have 25% or more witheld from their paycheck. Basically, they withold what the government tells them to based on far more information than a sponsor has. Another difference is that the company is required by law to withold these taxes and pay them to the government quarterly on the employees behalf.

A "tax-free" company bonus isn't really tax-free. The company simply decides how much bonus they want an employee to take home, then calculates taxes in the same way they would for a paycheck. So, if they want you to take home $10,000 and you normally have 20% witheld, they will pay $2000 in taxes under your account to the IRS from company funds. In January, when you get your W-2, that extra $2000 will actually be shown in your total yearly pay and will have to be claimed along with the $10,000. A lot of people don't look at their total earnings on the W-2 and compare it to their monthly salary X 12 months so they don't realize that is what has happened.

Sponsors don't have the same type of government mandated tax relationship with winners so they could not remit money on behalf of a contest winner. That is the winners responsibility.
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  Old  March 25th, 2010, 4:21pm     #15
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Quote:
Originally Posted by bomar97 View Post
No.. if the corporate pays the taxes on the win, you don't have to claim it.. this is what many companies do when they give bonuses.. it's free money to you.. the company pays the gov't the tax on their side.
That's not correct. If you receive income, you have to report it. A company may give a larger amount of money and have it withheld in advance to help you cover the tax obligation, but you still have to report both the bonus AND the extra amount given to offset the taxes... they simply give you enough extra to cover the entire taxable amount leaving you a specified amount.

Example:

They say they are going to give you $10,000...
They might actually give you $15,000 total, with $5000 of it withheld to cover your tax obligation on the full $15,000 amount, leaving you with $10,000 net.
They can only do this if they know your income and tax situation, which some employers have a decent grasp of for many of their employees.


Not reporting ANY income on your taxes is a bad thing. It's simply not worth the consequences.

Please consult a licensed and trained tax professional.
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