Are prizes and awards taxable income?

The rule

Publication 525’s Prizes and awards entry begins with a plain statement: if you win a prize in a lucky number drawing, television or radio quiz program, beauty contest or other event, you must include it in your income. It gives a $50 photography contest prize as an example and tells you to report that on Schedule 1 (Form 1040), line 8i. Prizes in goods or services must be included at their fair market value, which the publication defines elsewhere as the price at which an item would change hands between a willing buyer and a willing seller, neither being required to buy or sell and both having reasonable knowledge of the facts. A trip, a car or a gift card all count at the value they carry.

Refusing a prize

The publication includes a short exception: if you refuse to accept a prize, you do not include its value in income. That exception turns on actually declining the prize, not on giving it away after you take it. The rule is also a reminder that taxable value arises when you receive or accept the prize, so deciding in advance whether a prize is worth the tax can matter for noncash prizes like trips and vehicles.

Employee awards and bonuses

Cash awards or bonuses given to you by your employer for good work or suggestions must generally be included in your income as wages. The publication does, however, allow certain noncash employee achievement awards to be excluded. Under Bonuses and awards in the compensation section, tangible personal property (other than cash, a gift certificate or an equivalent item) given for length of service or safety achievement is generally excluded, limited to the employer’s cost and no more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards received during the year. The award must be part of a meaningful presentation that does not look like disguised pay. A length-of-service award does not qualify if it is for less than 5 years of service or you got another one in that year or the previous 4, and certain safety awards for managers and professionals are excluded from the exclusion.

The publication’s own example shows the limit working: three awards worth $250, $1,000 and $500 total $1,750, which is $150 more than the $1,600 limit, so $150 is included in income.

Prize points, and the Nobel-type exception

If you are a salesperson who receives prize points redeemable for merchandise from a distributor or manufacturer, you include their fair market value in income in the year they are paid or made available to you, not when you redeem them. A prize in recognition of accomplishments in religious, charitable, scientific, artistic, educational, literary or civic fields, such as a Pulitzer or Nobel prize, is generally included. It can be excluded if you meet every requirement: you were selected without taking any action to enter, you are not required to perform substantial future services to receive it, and the prize is transferred by the payer directly to a governmental unit or tax-exempt charitable organization that you designate, without your using it first. The publication lists what the designation should contain.

Worked example

A contestant wins $500 in cash and a vacation package with a fair market value of $2,200 in a radio contest. The full $2,700 is income, reported on Schedule 1, line 8i. If the contestant had declined the vacation, $500 would be included. An employee who receives a $400 safety watch from the employer, with a qualified plan award limit that is not exceeded, can exclude it, but a $400 cash bonus is wages. Use the calculator above for cash plus fair market value, with the refusal and charity-transfer switches.

Limits

Gambling winnings and some other special categories are covered elsewhere, and this page does not address state tax. Large prizes can raise your tax; use the federal tax brackets page for context and the bonus tax calculator to understand withholding on a lump sum.

Sources

• IRS Publication 525, Taxable and Nontaxable Income (2025): the Prizes and awards entry under Other Income and the Bonuses and awards, Employee achievement award and Fair market value entries under Employee Compensation. Read November 2, 2026.

Edition read: Publication 525 (2025), for use in preparing 2025 returns. Dollar limits and dates in this publication are for 2025; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it.