You may think that winning on “Jeopardy!” or “Wheel of Fortune” is a dream come true, but it comes with some strings. Even though “Jeopardy!” contestants like Ken Jennings and James Holzhauer outsmarted their competitors, they couldn’t outwit the IRS.
According to Forbes, all the winnings on both the game shows are considered ordinary income. As a result, the winnings are taxed up to 37 percent by the IRS. In addition, winning contestants will also have to pay state income tax. Per Forbes, a winner must report game show winnings, and you will receive an IRS Form 1099 if you forget to put your winnings on your tax return. Winnings are categorized as “other income” or miscellaneous income.
However, most game shows warn contestants about the taxes and forms even before they step foot on the set. Even if you don’t walk away with the cash, if you go on a show that awards prizes, the prizes you win get taxed as well. So even if you win a car on “Wheel of Fortune,” the vehicle gets taxed too.
A ‘Jeopardy!’ Winner Is an IRS Loser
For example, when “Jeopardy” champion and professional sports bettor James Holzhauer finished with his run with a whopping $2,462,216, he had to give a considerable cut to the IRS. In his 33 appearances on the show, including the $2,000 prize he received for finishing second in his “Jeopardy! Greatest of All Time” special, he paid $1.29 million — a 47.6 percent cut.
Even though he didn’t beat Jennings’ record total winnings back in 2004, Holzhauer maintains the record for the most money earned in a single Jeopardy episode: $131,127. He also has the record for the top four money-winning episodes.
In Holzhauer’s home state of Nevada, the state charges no state income tax. However, he earned his prize money in California – where Holzhauer faced taxes as a non-resident, Richard McGowan, associate professor of the practice in the finance department at Boston College, told FOX Business. He was also subject to the maximum rate in California. Even though a winner has to pay Uncle Sam some of their earnings, they’re still a winner.
As for “Jeopardy!” GOAT Ken Jennings once noted that he invested most of his game show earnings in stocks, bonds, and real estate. Following his win, he said that he hopes to make the most of what he won. “I don’t want to be one of these lottery winners you see bankrupt on TV a few years later, having already lost it all,” he said.