This Is Why It Doesn't Pay To Win Big On A Game Show

We've all seen contestants go nuts when they strike it rich on a game show.

When those contestants get home, they may find that the actual value of what they won is less than they thought.

That's because there are a number of things that happen behind the scenes that the home audience doesn't see.

For one, the show may replace prizes with cash of equal value.

As Art Alisi explains, that's because the show buys some of their prizes and there's a way to tell if they did, if you listen closely during the show. "When they say, I'm just gonna say Goodyear tires [as an example], 'You've won a set of Goodyear tires, from the number one store, Goodyear,' then you know that was promoted. If they just said you won a wonderful set of rubber tires, they bought it. So it's just as easy for them to give you the cash."

Most people don't mind taking home money in lieu of prizes, but others say it makes game show hosts into frauds.

Another, more famous issue that game show winners have is that there are taxes to be paid on all prizes.

Winners have to pay both state and federal income taxes on the prizes and cash they won.

Not only does the federal government want a piece of your game show prize check, but so does your state of residence and the state where the game show was filmed. While you can receive a credit on your taxes in your state of residence (based on the taxes you paid in the filming state), you'll still likely see a hefty bite taken out of your giant check.

Many of the shows are filmed in California, which means those contestants must pay the high taxes of that state before they can take their prizes.

For example, Jeopardy is filmed in California, where the non-resident income tax is 10%. Say you live in Indiana, where you would pay 3.4% tax on income. If you were to win big on Jeopardy, you would have to pay the 10% state tax to California, but only get a credit for 3.4% in your home state. Ouch.

In addition to having to pay income tax at the federal and state level on your winnings, you also might be pushed into a higher tax bracket, meaning you'll owe more money in April than you're used to.

Savvy game show winners elect to have taxes deducted from their winnings, although that doesn't necessarily take care of every potential problem. For instance, your tax return is going to be more complicated after a win, so you might need to pay for help filing it correctly.

This clause became famous when Oprah Winfrey gave audience members of her show new cars.

When they received the cars after the show, they found out they owed around $6,000 in taxes.

If you're tax-savvy, winning money is fairly straightforward. You can elect to deduct what you owe from your winnings, and go along your merry way. But what if you win a new car, a trip to Machu Picchu, or a lifetime supply of chocolate pudding? The IRS considers those to be earnings, too, and you have to pay taxes on the official retail value.

While the taxes may seem like a small price to pay, they can really put a dent in some prizes.

There are a couple of problems with this. First, if you don't also win cash from the game show, you might not have the money to pay taxes on your winnings. So you're faced with the option of either walking away from your prize, or scrambling to pay the tax bill on your new car.

The pricing on some prizes can be higher than normal, which means the corresponding taxes will be higher.

The second issue has to do with the official retail value. The value according to the game show is often inflated compared to what you'd pay for the item if you went shopping for it. And a higher official retail value means a higher tax bill.

Contestants could always sell the prizes, pay the tax, and make a small profit, but that's a lot of work for something that is supposed to be a gift.

You might think an easy solution would be to request the cash value of prizes instead but game shows won't let you do that. You're entitled to the exact prize you won, or nothing.

But of course, the rules aren't the same in reverse. If the item you won isn't available for any reason, the game show will give you cash instead.

The last thing to keep in mind is that contestants often cannot pick up their prizes until months after the show.

You don't get to drive off the set in the new car you just won, nor do they immediately pay you any money you win once you step off the stage. It usually takes between 90 and 150 days to receive your prizes.

Alisi says the prize department needs to verify that you are indeed who you say you are when you go on the show....

Alisi says: "I had one where someone told me he was an admiral, and the FBI came in and wanted to know where we found this man. And they told us, 'He's not an admiral, he's been impersonating an admiral for 30 years.' They arrested him, and whatever he won, they took away."

.. .and to make sure you've paid your taxes on your prizes. In the case of "The Price is Right," out-of-state contestants like me have to pay California state taxes before accepting any prize. "Let's say you're in Illinois, and we sent the prizes, and you didn't pay the taxes," Alisi says. "We're liable to pay those taxes. So we make sure you've paid the state taxes before we deliver the prizes."

Once a prize is won, the show contacts the appropriate prize supplier to let them know they'll need to save an extra let's just say desk chair for the lucky contestant. "We have to notify the prize providers to say that they're going to be on the show, and then we send them another certification saying you have 90 days to send the gift," says Alisi.

Now that you know the full scoop, you can better decide if going on a game show is worth it.

Just like casinos, game shows are stacked in favor of the house.

If you dream of showing off your trivia knowledge, your ability to guess the prices of retail items, or your hangman-playing skills, plan on doing it for the experience rather than what you could win. You might find your winnings are more of a headache than they are worth.