It's a common sweepstakes myth that prizes worth less than $600 are exempt from taxes. In the United States you have to pay taxes on all prizes, no matter what the value.There are two reasons why people think that sweepstakes prizes are exempt from taxes if they are valued less than $600:
Sweepstakes sponsors are obligated to report prizes valued at $600 or more to the IRS
According to the IRS' Instructions for Form 1099, sweepstakes sponsors are required to submit a 1099 form for "prizes and awards that are not for services, such as winnings on TV or radio shows" if those prizes are valued above $600. (Read more about 1099 Forms and Sweepstakes Prizes.)
Casinos and gambling institutions are required to withhold taxes on winnings above $600
The IRS has special rules for gambling winnings worth more than $600. See the Instructions for Forms W-2G and 5754 for more details.
The IRS says you must report your sweepstakes winnings as "Other Income" no matter what the value. The rules for the sponsors don't affect you. And sponsors must file a 1099 for prizes over $600, but they can report prizes of any amount to the IRS.
Sweepstakes prizes are not the same as gambling winnings under the IRS rules. They are reported and taxed differently.
Note: This article is the result of my research and is not intended to be legal advice. I am not a licensed tax professional. For verification, you should consult a tax expert.