Question: Taxes on winnings for silent auction/tricky tray?

As an incoming fundraising chairperson, I have just been advised that any prizes won over $600 need to be declared by the winner...this is going to put a big monkey wrench into the event I had planned. Is this true? I don't recall anyone paying out taxes on winnings at past events,silent auctions or otherwise, but I also noticed at an auction I was at this weekend, all the prizes were specifically kept under $600. Is there a way around this? We are a 501c3.

Asked by Anonymous

Answers:

Advice from PTO Today

Craig writes:
If the value of a prize is $600 or more, you need to send the winner IRS Form 1099. This is also true if you pay someone (as a contractor, stipened, etc.) $600 or more during the year. A silent auction is different in that people are paying for their purchases. But, for example, if you have a door prize worth $600, you need to issue a form 1099.

Community Advice

gjcoram writes:
Is there a threshold over which the PTO must also withhold taxes on the prize?

We keep our prizes under $600, though I have filled out some 1099s for payments to "independent contractors." Note that the recipient is supposed to report the prizes, even those under $600, as miscellaneous income on his or her 1040.

Advice from PTO Today

Craig writes:
Good question. There's a second element for raffles in addition to the $600 threshold -- if the prize is worth 300 times the cost of the ticket or more (ie $2 or less for a $600 prize). If the value of the prize is $600 or more and the winnings equal 300 times the cost of the ticket or more, that's when reporting comes into play.

Here's a link to an IRS notice with more details (it's a pdf): http://www.irs.gov/pub/irs-tege/notice_1340.pdf