How should non-cash gambling prizes (such as cars or trips) be reported on Form W-2G?

Non-cash gambling prizes, such as cars, trips, or other items, must be reported on Form W-2G (Certain Gambling Winnings) based on their fair market value (FMV). Here’s how it works:

Reporting Non-Cash Prizes

1. Determine Fair Market Value (FMV):
   • The FMV is the retail value of the prize at the time it is awarded.
   • Use the manufacturer’s suggested retail price (MSRP) or a reasonable equivalent for valuation.
   • Document how the FMV was determined for your records.
2. Include in Box 1 (Gross Winnings):
   • Report the FMV of the non-cash prize as winnings in Box 1 of Form W-2G.
3. Federal Income Tax Withholding:
   • If the value of the prize exceeds the withholding threshold, federal income tax must be withheld at a rate of 24%.
   • This withholding can be collected in cash from the winner or satisfied by reducing the value of the prize (e.g., the winner pays the tax in cash before claiming the prize).
4. Social Security and Medicare Taxes:
   • These taxes do not apply to gambling winnings reported on Form W-2G.

Threshold for Reporting

You must issue a Form W-2G for non-cash gambling winnings if:

• The prize’s FMV exceeds $600, and
• The amount is at least 300 times the wager.

Special Considerations

1. Withholding on Non-Cash Prizes:
   • If the winner cannot pay the withholding upfront, you may need to convert a portion of the prize (e.g., sell it) to cover the taxes.
2. State Tax Reporting:
   • Check state-specific rules for reporting and withholding on non-cash prizes.
3. Multiple Winners:
   • If a prize is awarded to multiple people, divide the FMV proportionally and issue separate W-2G forms.