Another result of America’s crazy tax system where taxes on prizes are paid by the winner instead of at the point of entry into a competition. A prize of around-the-world airline tickets from an American Airlines contest has caused one man no end of grief. The tax on the tickets ended up being more than the tickets would have normally been sold for, but because of tax regulations in the United States, the IRS must have figures for the highest retail value of the goods.
The contest’s fine print explains that winners must pay federal and state income taxes, where applicable, on American’s “approximate retail value” of the 12 round-trip tickets for two, which the airline valued at $52,800, or $2,200 per ticket.Jack McCall, a New York resident who won American’s grand prize in the video category by submitting a video montage of snapshots he and his wife collected during their travels around the world, estimates that federal, state and local taxes on the prize could amount to roughly $19,000, given the couple’s probable federal tax bracket and because they live in New York City, where income taxes are high. That’s equivalent to about $800 for each of the 24 tickets.
And in today’s cut-rate airline pricing environment, American’s valuation is far more than a winner would likely pay if he or she simply bought the tickets. The result: The tax bill could be higher than the tickets actually sell for.
“I don’t know where they got that $2,200 from,” says Mr. McCall. “I’ve never spent more than $1,000 for a plane ticket in my life.” Mr. McCall, who is declining the prize, says he could do far better purchasing them himself.
0 Responses to “Plane and Simple: A Winning Dilemma”
Leave a Reply