Note: At DojoMojo, we are not lawyers and this article shouldn’t be taken as legal advice. Some states have additional requirements according to prize value. Always consult with a knowledgeable tax professional if you are unsure about anything to do with your sweepstakes taxes. Tax laws change frequently, and the most recent information can be found on the IRS website. It is always best to consult legal advice if you have the resources to.
Once a giveaway has ended, the host brand should randomly select a winner using the Pick Winner button found in the Summary section of the Campaign Manager. Once an email (the potential winner) has been selected out of the pool of entries, the host brand should notify the potential winner by email. This involves sending an affidavit and a 1099-MISC tax form.
What’s an affidavit?
An affidavit is a legal document that contains a statement (sworn in writing) that verifies one’s own personal information, such as name, age, and SSN. It is a verification of identity, which, in turn, is an verification of eligibility.
What should host brands do?
Ask the winner to read, agree to, sign, and return the affidavit, along with clear scans of the front of their government-issued ID (driver’s license or passport). The only info that needs to be visible is birth date and address, so the potential winner can block out the other information if they want. Alternatively, the winner can have the affidavit notarized, and an ID copy is not required.
The affidavit verifies that:
- The information entered on the giveaway entry form is true and accurate.
- The potential winner is in compliance with the rules - they are eligible to win the prize and are not associated with the giveaway’s sponsor.
- The potential winner agrees to the terms and restrictions of claiming the prize, if any.
The affidavit may also ask to confirm that the sponsors can publish the winner’s name for publicity purposes. Based on the terms of the affidavit, the potential winner can decide whether to accept the terms or decline the prize. If the prize is for two or more people, all guests of the potential winner must meet the same eligibility requirements and submit a guest release, which verifies the same information as the affidavit.
Should an affidavit be notarized?
Affidavits must often be witnessed by someone authorized to verify the information, such as a notary public. A notary provides an additional level of security by acting as an impartial third party who is authorized to double-check that the winner is who they say they are. If the affidavit is notarized, you don’t need the government-issued ID.
- Example Affidavit (Note that DojoMojo and Innovation Brands Corp. cannot be held liable if you use this sample language): http://assets.dojomojo.ninja/uploads/2018/02/01151544/Affidavit-of-Eligibility-and-Release-of-Liability.pdf
What is an 1099-MISC form?
The 1099-MISC form is used to report miscellaneous payments to non-employees. Any giveaway prizes are considered to be miscellaneous payments. The form will include information that helps keep track of the income received by winning the giveaway, so that the potential winner can report it accurately to the IRS at tax time.
The form will include:
- The sponsor’s name, address, and tax ID number
- The reported value of the prize
- The winner’s name, address, and SSN
- The tax year that the 1099 form applies to
- Other relevant info
If the winner lives in the United States, they will be paying taxes on their prizes when their prize is worth more than $600 or if they were asked to fill out an affidavit to receive the prizes.
What should the brands participating in the giveaway do?
Any participating brand (host brand or joined brand) is required to send a 1099-MISC with their tax information on it if the Market Value of the prize that they are individually contributing to the winner is over $600. According to the IRS guidelines, brands must mail a copy of the 1099-MISC form to giveaway winners in a letter postmarked by January 31 of the year following the year in which they receive the prize. The 1099-MISC form should be for the year in which the winner actually received the prize, so if a large prize is not delivered until a year after a giveaway, the form will be sent by the end of January of the year after that. You don’t have to wait until January - you can send it shortly after awarding the prize.
For compliance and as a best practice, the host brand of any giveaway should send a blank 1099-MISC form to the winner in case other brands who have contributed over $600 in prize don’t send their own. Even if every brand participating in a giveaway is each contributing under $600 and therefore does not need to send individual 1099-MISC forms, if the total value of the prize exceeds $600, it must be reported as miscellaneous income to the IRS.
Once you’ve sent the form, it’s up to the winner to fill it out and report their prize in their taxes. They only have to fill it out for the prizes they actually received. A sample 1099-MISC form and instructions for using them can be found on the IRS website: https://www.irs.gov/pub/irs-pdf/i1099msc.pdf
1099-MISC for guest
If the prize involves an experience “for two” (rather than simply cash credit for a second guest), the winner’s guest must also be eligible and would have to fill out a 1099-MISC, too