Wait… what? There are taxes to be paid on winning a raffle prize?!

Yes! That’s absolutely the case. Prize Winners owe taxes on Prizes won in ALL raffles, not just the The Fifth Annual Climate XChange Tesla Raffle (The Raffle). And it’s Big Bucks when the Prizes are expensive.

Here’s how much money is involved. And, if you’re interested, keep reading on to learn the details.

Important note: Nothing on this page is intended to constitute legal or tax advice. All participants should consult your own legal and/or tax advisor.

Our Grand Prize Includes Tax Payments On Your Behalf

For the Fifth Annual Climate XChange Tesla Raffle, we offer a choice of Tesla vehicles as the Grand Prize. The Second through Fifth Prizes are all cash! Because the tax burden on the Grand Prize Winner would be large (see below), we also pay the U.S. withholding tax on your Prize on your behalf. Turns out that there’s also a Massachusetts withholding tax that you would owe…so we pay that one, too! And for reasons you can learn in the details below, Climate XChange even pays more than you would. Equally as bad, if you had to pay the withholding taxes yourself on The Grand Prize, you would even have to send them in before Climate XChange could pay Tesla to deliver your Prize! Ouch!!

Grand Prize: Model X SUV, Model S Luxury Sedan, Model Y Midsize SUV, or Model 3 Midsize Sedan (up to $125,190 for the car by itself).

we pay the sales tax and registration fee up to $8,124

the sales tax and registration fee up to we pay the IRS up to $47,446 you would have had to pay in advance.

the IRS up to you would have had to pay in advance. we pay the Massachusetts Department of Revenue up to $9,038 ; you would have had to pay.

the Massachusetts Department of Revenue up to ; you would have had to pay. … so we pay total tax payments of up to $64,608 so you don’t have to pay.

total tax payments of up to so you don’t have to pay. … which means that CXC lays out a grand total of up to $189,798 for the Grand Prize

Second Prize: the Prize payout to Prize winner is $10,000

Winner responsible for taxes on prizes

Third Prize: the Prize payout to Prize winner is $5,000

Winner responsible for taxes on prizes

Fourth Prize: the Prize payout to Prize winner is $3,000

Winner responsible for taxes on prizes

Fifth Prize: the Prize payout to Prize winner is $2,000

Winner responsible for taxes on prizes

Some Details

You may not know this: as a Prize Winner, you may immediately owe withholding taxes to the IRS. Below, we explain why that’s a problem and also why we make the Grand Prize better by dealing with this problem!

When a Winner wins a raffle prize, United States law and IRS regulations treat the raffle prize as income to the Winner, so those laws and regulations require that the Winner pay taxes on the Fair Market Value of that Prize. When the Prize is small, $5000 or less, those taxes are solely the responsibility of the Winner. In the event that the value of the Prize is $5,001 or more, the organization sponsoring the raffle must withhold the required amount of taxes on the Prize. The sponsoring organization then remits these taxes to the IRS.

In many (most?) cases, raffles require the Winner to come up with the necessary cash in advance, either by sending the appropriate amount to the sponsoring organization or by allowing the sponsoring organization to deduct money from the Prize (if, say, the Prize has a cash component). In the case of Climate XChange’s Grand Prize, a Tesla Model S, Model X, Modely Y, or Model 3 valued at over $120,000, the Winner would be required to send 25% of that value to Climate XChange to be forwarded to the IRS — over $31,000! And you’d have to send us that money before you received your Prize.

It turns out that the Commonwealth of Massachusetts also requires a withholding tax payment. That’s because Climate XChange is based in Massachusetts and the Commonwealth’s taxation laws follow the federal taxation laws. So Massachusetts treats a Prize awarded by a Massachusetts-based nonprofit (that’s us, Climate XChange) as Massachusetts-derived income to the Winner. And that’s taxable. In the case of the Grand Prize, the Winner would have to send us 5% of that value — over $6,000. In advance, of course.

Because we at Climate XChange believe that most people don’t have this kind of money lying around to send to the IRS and the Massachusetts Department of Revenue (DOR) whenever they feel like it, we decided that the Grand Prize should include, as part of the Prize itself, the required U.S. and Massachusetts withholding tax payments for the Prize. The IRS and DOR understand and allow for this possibility. However, because the tax payment we make on your behalf is also something of value to you, it turns out that we have to pay taxes on the taxes that we are paying for you! We have to pay the IRS 33.33% of the Prize’s Fair Market Value, rather than the 25% you would have to pay directly, for the privilege of paying your U.S. prize tax for you, because when we pay those taxes on your behalf, that counts as income to you. Then, Massachusetts wants another 5%. But wait…it gets worse…the money we send to Massachusetts counts as income for you from the IRS perspective. So we have to pay tax to the IRS on the taxes we paid on your behalf to Massachusetts. Then, from the Massachusetts perspective, we’ve just given you more income by sending a larger tax payment to the IRS, so now we have to pay tax on that to Massachusetts! This craziness goes on for a while until the taxable amounts become small enough that we reach a dollar or less. (Incidentally, while the regulations allow us to subtract the price of the raffle ticket from the amount we send the IRS and the DOR, we no longer bother, as the amount we would save is tiny compared to the amounts we have to pay.)

Any and all other taxes, fees, surcharges, excises, and so on, whether from the United States, the Winner’s state, the Winner’s locality, or anywhere else on the planet, are the responsibility of the Prize Winner.

For further details, including any restrictions or caveats, see the Legal Details section of the website.