In 2020, Tyler Boulden and her grandmother, Nellie Wallace, from Quarryville, Pennsylvania, won $1.67 million on the NBC game show “The Wall.” Wallace and Boulden won roughly $800,000 each.
Boulden called Dave Ramsey’s Show weeks before receiving the check, seeking advice on taxes, how much to gift to family, and how much to spend on a house.
Almost Half Of The Winning Gone In Taxes
When Boulden said she expected to receive $500,000 after taxes, Ramsey swiftly suggested triple-checking how much she would owe in taxes since there’s a “special tax rate that’s extra high” for game show winnings.
Boulden rectified that her accountant said she would get around $475,000 after taxes. “So they are taking almost half of it? God bless the USA,” Ramsey remarked.
Net take-home pay from game show winnings depends on the cash amount and where you live. If you win big, it might be much more than your usual annual pay, which could put you in a higher tax bracket. Winning $800,000 on top of your yearly salary could push part of your annual taxable income into the highest 37% tax bracket, which means extra taxes on the prize money.
The Internal Revenue Service generally views cash prizes as miscellaneous income, and winners receive a Form 1099-MISC from the game show detailing the cash winnings. The awarding entity also sends a copy of that form to the IRS, and winners must attach it to their income tax return for the applicable year.
Meanwhile, under Act 84 of 2016, Pennsylvania residents also pay a personal income tax of 3.07% on all gambling and lottery cash prizes. The residents report these payments as taxable income on a PA-40 Schedule T form when filing state income tax returns. The Pennsylvania Lottery withholds income tax on prizes over $5,000, while winners receiving over $600 get a W2-G form by mail during the calendar year.
Even if game shows award non-cash prizes like a car or a vacation, winners pay tax on the fair market value of these goods or services. However, non-cash prizes from the Pennsylvania Lottery aren’t taxed.
Brewing Family Drama
Regarding Boulden’s question about how much of the winnings she should give her family and cousins, Ramsey says, “Very little to none.”
Boulden explained she went to the show with her grandmother, and her cousin helped grandma sign up for the show. Since Boulden was the closest to her grandmother, everyone asked if she could join her. After winning, she understood everyone felt entitled to a portion of the earnings.
Boulden’s mom felt that the whole family could have picked any one of the grandkids for the show, and hence, Boulden should have shared the prize with others. Ramsey believes that if a grandmother wants to give something to her grandkids, she can, but Boulden is “not morally obligated to your entitled cousins.”
It is common for people to want to financially help close friends and family after winning big. Many friends and relatives you haven’t met for years may also come asking for their share upon learning about game show winnings. Helping is fine, but many instances have occurred when people became dependent on free money and flipped when prize winners cut off that supply. Saying “no” to entitled relatives can be challenging but crucial to preserve your newfound wealth.
Managing Large Winnings Can Be Tricky
Boulden graduated from Lampeter-Strasburg High School, and her grandmother Wallace, 76, was a real estate manager four years ago. They often volunteered at a nearby low-income retirement community, making homemade meals and socialising with the residents.
“We do it because we love it,” Wallace had said. “We get as much out of it as they do. A lot of times, they don’t get to see their family, so we are their family.” Boulden acknowledged her grandmother had taught her the value of hard work and how to “never give up.”
Prize winners, who are inherently not wealthy, can find it overwhelming to manage large cash amounts. Although Boulden was debt-free, she planned to buy a new house worth $320,000. Back then, she was living in a $150,000 home. Ramsey said if she wanted a new house, she should “write a check, pay cash for it.” Making a bigger downpayment on a house can significantly lower your interest payments on a mortgage over time.
Also, winners often wonder how to grow their money and how much they can spend without going broke. Finding the right way to balance expenses during a lifestyle upgrade after winning cash prizes is vital. Lifestyle creep is a common issue of higher spending as your income increases, leading to no additional savings.
Consulting with a fiduciary financial advisor legally obliged to work in your best interest can help with taxes and avoid impulsive spending or risky financial investments.
