I've won a vacation prize, and I'd like to know what taxes I'll have to pay before I decide whether to accept it or not. What taxes do people usually have to pay when they win a vacation?
Whether you win vacation prizes, cash, or any other type of sweepstakes prize, US residents are responsible for declaring your prizes on your taxes as miscellaneous income. For more details, see How to Pay Your Sweepstakes Taxes.
You'll be taxed on the value of your sweepstakes prize as if you had earned it by working. Therefore, it's important to be sure that you're stating the correct fair market value on your taxes. If you think that the ARV of your prize is higher than the fair market value, see How to Dispute the ARV of Your Prize for more information.
In addition, when you win a vacation prize, you may be responsible for other taxes as well. Some sweepstakes don't cover the taxes on the individual portions of your prize. These additional vacation sweepstakes taxes may include:
- Port taxes on cruises.
- Room taxes for hotel stays.
- Airport taxes, like the 9/11 security tax, fuel taxes, etc. for flights.
How Will I Know Which Taxes are Covered in My Vacation Prize?Usually, the rules of the sweepstakes you enter will indicate any taxes that aren't covered by the sponsors. As these vacation prize taxes can add up, be sure to read the rules carefully before entering to win trips.
Caution about Additional Taxes on Vacation PrizesOne of the warning signs of sweepstakes scams is that you pay taxes directly to the IRS, not to the sweepstakes sponsor. So if someone asks you to wire them thousands of dollars to pay your taxes before receiving your prize, it's a good sign that you're being scammed.
But the additional taxes for vacation prizes, like port taxes or airport taxes, are not paid to the IRS. These types of taxes are the rare exception to the rule. (Note that income taxes on vacation prizes are still paid to the IRS).
If a sponsor asks you to pay port taxes or other vacation prize taxes, be sure to double-check the other warning signs to make sure everything else looks fine. Refer to the sweepstakes' rules to see whether these taxes were explained in advance. And check that the amount you are being asked to pay is reasonable. This will help keep you safe from scams.
Have more questions about winning trips? Vacation Prize FAQs has answers to important questions about winning vacations.
Disclaimer: Tax laws vary from country to country; this article regards taxes in the United States. This is not intended to be legal advice. For tax advice that matches your specific situation, consult a tax professional.