Winning a prize isn’t all roses as one Reddit user found out. Posting on the r/MicrosoftRewards subreddit, user Elvite indicated that he won the recent Game Pass Ultimate for Life contest held by Xbox but upon closer examination was going to be on the hook for roughly $1700 in additional taxes.
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“I read that I would have $7300 of added taxable income to my 2023 taxes as a result if I claim the prize. Per US tax law, that will likely increase my 2023 federal tax bill by $1752 (24% of the prize value). Also, I would have added state income tax, but let’s not bother figuring that in. The “for Life” part of the prize is limited to a maximum of 40 years, hence the $7300 cash value that they have to report to the IRS. The prize is not transferable nor can I ask for the cash value instead. This makes the “prize” not really a benefit to me until almost 10 years have passed, which is how many years of Game Pass I could buy right now if I spent around $1752.”
I’m not an expert on tax law, but it does appear from the comments that this is mostly a U.S.-based issue. Unfortunately, it sounds like u/Elvite is out a fantastic prize here as a result. I know that winnings from lotteries or contests in Canada aren’t claimed for tax purposes so had a Canadian gamer won this, s/he wouldn’t have run into this issue.
What do you think about the user having to decline the Game Pass Ultimate for Life to avoid taking a tax hit? Have you had to decline a prize due to this issue in the U.S. as well? Let us know on social media by using the buttons below.
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