Michigan Attorney General's - Top 10 List of THINGS TO REMEMBER IF YOU ARE CONSIDERING Entering Sweepstakes

Michigan Attorney General

1. Buying will not help you win and don't be fooled by differences in the handling of buyer/contributor and non-buyer/non-contributor entries.

Your chances of winning without a purchase or donation are the same as the chances of someone who buys or donates. It is illegal to give any advantage to a buyer or a donor in a sweepstakes.

2. You have NOT already won.

Sweepstakes are games of chance. The winner has not been identified. If you enter, your entry will have the same chance to win as every other entry. No one knows who the winner is until after the sweepstakes ends.

3. Responding to sweepstakes promotions - and especially buying anything - will cause you to get more promotions.

There is an entire industry in buying and selling leads on people known to participate in sweepstakes and other direct mail marketing and telemarketing. These leads appear on "sucker" or "mooch" lists. The best way to protect yourself from sweepstakes fraud is to keep your name off the lists. To do this, you will need to limit or stop participating in sweepstakes and contests, and you should not do business over the phone with unknown callers.

4. Never give a credit card number, bank account information, Social Security number, or any other personal information to someone who calls you. 

One popular way to use the "sucker" lists is to call someone on the list and pretend to be a sweepstakes official. This person then says that the company needs your social security number or your credit card number or bank account number to award the prize. No legitimate contest ever asks for personal information like this.

5. If you have to pay anything to collect a prize, you didn't win.

A popular tactic that some disreputable operations use is to contact you and tell you about a great prize that you've won - but then say that you have to pay a small "handling fee," or "shipping fee" before your prize is delivered. Remember, in a legitimate sweepstakes, a free prize means you pay absolutely nothing, and there are no strings or fees attached.

6. Never pay "taxes" to a sweepstakes promoter.

Another popular tactic the con artists use is to require a pre-payment of taxes. No legitimate company will ever ask you to pay taxes to them to release your prize.

7. Don't be fooled by deceptive envelopes.

Deceptive marketers often use misleading envelopes that include statements such as "REGISTERED DOCUMENT ENCLOSED," or refer to fines and imprisonment for a person who tampers with the envelope. Some use fictitious senders' names like "The Offices of records of Sweepstakes/Disbursements Division," or suggest that the recipient has won a prize, such as "Confidential CASH AWARD Documents Enclosed" and "OPEN AND RESPOND IMMEDIATELY!  $3,000.00 cash award is ready to be sent!"

8. What a telemarketer must tell you.

If you get a call from a telemarketer that involves a sweepstakes or prize promotion, the caller is required to tell you:

• The odds of winning a prize.
• That no purchase or payment is required to enter or win a prize.
• How to participate without buying or paying anything.
• The costs or conditions you will have to meet to get a prize.

9. Read the sweepstakes rules carefully, including any fine print.

Before you enter any sweepstakes, read the rules that the promoter is required to include. Pay attention to the dates when entries are accepted, the odds of winning, and any restrictions on entries. Take note of anything that suggests that you have to buy to enter, or that doing so will increase your odds of winning. Report any sweepstakes offers that have this kind of language in them to the Attorney General.

10. You have the right to stop the mailings. 

By law, all sweepstakes offers must include an address or toll-free phone number where anyone, including a caregiver, may direct that their name and address be taken off the sweepstakes firm's mailing list. If the mailings do not stop after you request to have your name removed, file a complaint with the Attorney General.

Contact the Attorney General with Questions or Complaints

While there are legitimate, reputable firms that use sweepstakes promotions fairly and honestly, it is important to be able to tell them apart from the disreputable firms who prey on "sucker" lists. If you have any questions about sweepstakes promotions mailings or calls that you receive, you may contact the Attorney General's Consumer Protection Division:

Consumer Protection Division
P.O. Box 30213
Lansing, MI 48909
517-335-7599
Fax: 517-241-3771
Toll free: 877-765-8388
Online complaint form

How Much State & Federal Tax Is Owed on Sweepstakes Winnings?

That winning sweepstakes entry could mean a big tax bill.

Addition to Income

Prizes and awards will increase your tax bill, but the question of how much depends on the value of the winnings and the amount of your other income. Prizes are taxed as ordinary income. That means you add the prize value to the income you received from your job and other sources during the year. Sometimes, a sponsor will include a cash award to help cover taxes on the prize, but the cash also is taxable income to the winner. The prize value will increase your federal adjusted gross income, which likely will increase your net taxable income after you take your exemptions and deductions. The prize win could push you into a higher tax bracket. Your federal adjusted gross income is the starting point for most state income tax returns so the value of the sweepstakes prize within your federal AGI could increase your state taxable income.

State Taxes

You will have to pay state income tax on your winnings in 39 states. If you live in one of the 11 states that don’t tax sweepstakes prizes, you may be spared state income taxes. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming have no state income taxes. Additionally, California, Delaware, New Hampshire and Pennsylvania don’t tax winnings on sweepstakes or other gambling. But if you live in a non-taxable state and win a sweepstakes based in a taxable state, you may have to file a tax return with the taxable state where the sweepstakes is based. If you are unsure about whether you will owe state tax on your big win, ask your state's tax collection agency.

Tax Withholding

If the sweepstakes prize is worth more than $5,000, the sponsor must withhold 25 percent of the prize value for federal taxes and may have to withhold state taxes as well. But if the prize is a car or other expensive merchandise, you may be required to give the sponsor the cash to pay the federal tax withholding before the sponsor will release the non-cash prize to you. For instance, if you won a $25,000 car, you may have to give the sponsor $6,250 for the federal tax withholding before the sponsor will give you the car. You may also have to pay state withholding up front. The sweepstakes sponsor could choose to pay the federal tax withholding, but if it does, the sponsor’s withholding rate is one-third of the prize’s fair market value.

Valuing Prizes

If your prize is a non-cash award such as a trip or a car, you will owe tax on the fair market value of the prize. There is no uniform method for determining fair market value. Neither the U.S. tax code nor U.S. Tax Court rulings have specified the proper way to set the fair market value of a non-cash prize. The sweepstakes or contest promoter will report what it considers to be fair market value. That figure may be different from the “approximate retail value” the sponsor cited in sweepstakes advertising. But the sponsor’s fair market value figure may be subject to dispute. For example, parties could dispute whether the fair market value of an automobile is the manufacturer’s suggested retail price or the discounted price the sweepstakes sponsor paid to buy the car.

Exempt Prizes

You can avoid all taxes on a prize if you refuse to accept it. A prize may not be taxable if it meets certain legal tests. To be tax-exempt, the prize must be in recognition of personal achievement in religious, scientific, literary, artistic, charitable, educational or civic affairs. You cannot have nominated yourself for the prize or submitted your own work for review. You can’t be required to perform services as a condition for receiving the prize. You cannot claim the prize for yourself but instead must assign the prize to charity. If you assign away the prize, you don’t get a charitable donation deduction. All these tests must be met to avoid tax on the prize.

Sweepstakes Fraud

One of the most popular sweepstakes in recent years in the U.S. has been the McDonalds’ Monopoly promotion sweepstakes. This promotion has been running since 1987. The purpose of the sweepstakes is to get more customers into McDonalds’ restaurants by offering various prizes – most frequently, free McDonalds’ food items. This sweepstake is also a case study in some of the legal pitfalls to be avoided when conducting promotions.
In 2000, the McDonalds’ promotion was halted after fraudulent activity was uncovered. A subcontracting company, Simon Marketing, had been hired by McDonalds&#8217 to run their Monopoly sweepstakes – including organizing and promoting the game. Simon Marketing executives were allegedly able to rig the sweepstakes by removing the most expensive game pieces from the general circulation and distributing them to associates in order to redeem the prizes and share in the proceeds. From the period between 1995-2000, associates of Simon Marketing won almost all of the top prizes. The scheme was uncovered when one of the associates informed the FBI of fraud.