§74 Prizes and Awards

Summary

Prizes and awards usually count as income and must be reported for tax purposes unless the law gives an exception. Awards given mainly for religious, charitable, scientific, educational, artistic, literary, or civic achievement are tax-free only if the winner was chosen without entering, does not have to do significant future work to get it, and the payer sends the prize to a government unit or a qualifying charity under section 170(c)(1) or (2) at the winner’s direction. Employee achievement awards (defined in section 274(j)) are tax-free if the employer’s cost does not exceed the amount the employer can deduct. If the employer’s cost is higher, the recipient must include in income the larger of (a) the non‑deductible part of the employer’s cost (but not more than the award’s value) or (b) the amount the award’s value exceeds the deductible amount; the rest remains tax-free. For tax‑exempt employers, use the deductible amount they would have had if taxable. See section 132(e) for small fringe benefits. Medals and prize money from the U.S. Olympic or Paralympic Committee for Olympic or Paralympic competition are not taxable unless the taxpayer’s adjusted gross income (without this exclusion) is over $1,000,000 ($500,000 if married filing separately). For certain other tax limits, adjusted gross income is figured after applying the Olympic exclusion but before checking the $1,000,000 cap.