Sorry if you guys talked about this already.
http://www.suntimes.com/output/roeper/cst-nws-roep20.html
Car winners finding out there is no free lunch
September 20, 2004
BY RICHARD ROEPER SUN-TIMES COLUMNIST Advertisement
Under any circumstances, getting a new car for free is better than not getting a new car for free. If you're ever offered a free car, take it. But do so knowing that even when a car is free, it's not really free.
When Pontiac gave a 2005 G6 sedan to each of the 276 fans in the studio audience on the season premiere of "Oprah," many reports said the automaker would be picking up the tab for "all taxes," with the winners responsible for insurance.
However, just about everybody in the media was a bit cloudy about which taxes would be paid.
From the AP: "The cars, which retail for $28,000, were donated by Pontiac. 'A little idea grew into a big idea,' [said] Mary Henige of Pontiac. "She added that Pontiac will pay for the taxes and the customizing of the cars."
Valerie Morris, CNNfn: "Pontiac, by the way, is going to pay taxes and customizing of the cars."
Detroit Free Press: "GM's Pontiac division is covering all of the costs, including the tax and licensing fees."
Detroit News: "Pontiac donated the cars and will pay all taxes."
New York Post: "Pontiac also picked up taxes . . . meaning all the lucky 'Oprah' winners will have to do is pay for insurance."
My column: "Pontiac is also taking care of the taxes. However, the new car owners will be responsible for insurance."
True, but not the whole truth.
Pontiac is covering the cost of the sales tax -- but the recipients of the cars are responsible for paying state and federal income tax.
And for every one of those lucky winners, we're talking about a tax hit of thousands of dollars.
The taxman cometh
While most of us merely weren't specific enough, some reports were flat-out wrong, e.g., the Milwaukee Journal Sentinel: "Luckily for [the winners], GM paid the income taxes on the cars, too."
In fact, as Pontiac spokesman Mary Henige confirmed for me, GM-Pontiac never claimed it would be paying the income taxes and never implied that it would.
When winners actually pick up their new cars -- the G6s in the Harpo lot were props -- they'll be issued 1099 forms. Whether you're a big winner on "Jeopardy!" or "Wheel of Fortune" or you're the recipient of a free car on "Oprah," you have to pay taxes on all winnings. Given that a fully loaded 2005 Pontiac G6 is valued at more than $28,000, that's quite a one-time boost for someone making, say, 30 grand in 2004. You'd suddenly go from the 15 percent tax bracket to the 25 percent bracket.
As Oprah might put it: "You're in a higher bracket, you're in a higher bracket, you're in a higher bracket, you're all in a higher bracket!"
Everyone's tax situation is different, but for a married mother of two who makes about $30,000 a year, getting that free car means you'll probably owe about $5,000 to $6,000 in federal taxes, and several hundred dollars in state taxes.
For one winner, this reality sunk in immediately. William Toebe told the Green Bay Press-Gazette, "Some people who have known me for a long time said I looked pretty forced, even when I was up there smiling. While I'm standing there I'm thinking, 'Oh my God, where am I going to get the money to pay the taxes?' "
In an article about Sue Flemming and Nicole Clark, two Illinois women who won cars, the Rockford Register Star noted that an "accountant told Flemming to expect to owe $6,000 in federal taxes on the car, which she may pay by taking out an auto loan . . ."
See that? You win a new car, and the next thing you know, you're taking out an auto loan!
Becky Thomas brought her husband, Rob, to the taping -- so they both got cars. But, as Becky told the Roanoke (Va.) Times & World News, "The reality is that, quite honestly, we'll probably have to sell one [car] just to pay the federal taxes on the other one."
You have to wonder how many of the 276 will actually keep the cars they won.
No doubt other winners will counter the oncoming tax hit by selling their new cars and buying less expensive cars, or using the G6s as collateral to take out loans -- but you have to figure that next spring, at least one person who was crying with happiness at the "Oprah" taping is going to be crying for other reasons when she realizes the tax hit she'll be taking.
When a million isn't a million
Just as there was no income tax talk putting a damper on the "Oprah" love-fest, there's never any tax talk on any of the reality shows, either. Contestants on "Survivor" don't say, "Friendship goes out the window when you're competing for a million dollars! I mean, several hundred thousand dollars after taxes."
At least "Survivor" doles out the $1 million first prize (minus taxes, of course) in a lump sum. On some other reality shows, there's no possibility of becoming an instant millionaire, because the money is paid in installments. The most infamous example is the first season of "For Love or Money," on which the $1 million prize was to be paid out over 40 (!) years, at a rate of $25,000 per year.
Before taxes.
