If you’re accustomed to paying a certain tax rate, it’s important to be aware that your winnings can throw you into a higher tax bracket, which means you may have a bigger tax bill than you’re used to in April. Your winnings will be taxed along with your other income, following the rate that goes along with your tax bracket. You’ll add it to any other miscellaneous income you’re claiming for the year. When you’re filling out your Form 1040, you’ll input the information from your 1099 on Line 21, Other Income. The amount you won will be listed in Box 3, Other Income. You will then get a total of what you won on Form 1099-MISC at tax time. You’re technically supposed to report even the smallest winnings and pay taxes on them, but prize issuers are required to report winnings of $600 or more to the IRS using Form W2-G.
But unlike work earnings, you may not be handed a form from the prize issuer, which means you’ll need to track your winnings and claim them yourself. Winnings are taxed as ordinary income, so you’ll pay the IRS just as you would pay on the money you earned through any other source. The taxes you pay on prize money depend on the amount you win, the state where you win it and the type of prize.
