Xbox Fan Wins 'Game Pass For Life', But Shockingly Declines The Prize

That’s strange tax laws.
I don’t think this happens like this in the UK
not really sure?

I recently saw someone take 1500 dollar on a gameshow instead of a car. For sort of the same reason. He couldn’t afford the taxes he had to pay for the car. (He also should have payed for the shipping cost of the car) He was happy to take the 1500 dollar.

I just wouldn't report it.

Hopefully Microsoft step in here and find a way around it. I would never in a million years consider something like this so props to this dude for doing his due diligence!

@Ocat that’s insane. Take the car. Sell the car. Pay the taxes. You have more than 1500 profit.

@Jenkinss your not the one that reports it, Microsoft does, just like an employer would do. Microsoft (or any company) does this because it also effects their company tax

The cost of taxes should be paid as an assumed part of the prize imo.

The american experience 🥲

Crazy how that works in some countries.

Also, America is a continent.

@Ashadelo well then RIP the dream

Would be easier if instead if a price, they got a special offer to buy Game Pass for 40 years at a deep discount, 40 years for $1.

@Jenkinss this is Microsoft, they likely meet their own legal obligations and get enough identifying information to report the prize themselves, and send you related tax forms at the end of the year.

A gamer who read the fine print and does his taxes. Pretty brilliant comprehensive decline.

i wonder if microsoft rewards should be reported when one does their taxes?

@Dezzy70 https://superlucky.me/should-we-pay-tax-on-prizes/
no tax on UK prizes, unless its a prize for your profession eg winning snooker, darts, golf etc

@somnambulance got to be careful even with the wording. Say you are giving them a coupon that creates the discount, and now that coupon itself is "worth" $179.88 - $00.01.

Offer them the chance to buy at a discounted price, and then its a whole other category (see Stock Options.)

Taxes are... funny. In a non-funny way.

Pretty wild that the US taxes prize winnìngs. That's not how it works in Canada, is that the case in the UK?

@somnambulance Technically, if you are not employed, or have such a low income that you are exempt of paying taxes, the award might not actually get you above the "must pay taxes" line.

@Dezzy70 yeah my thoughts too, I don't think it would have applied in the same way had one of us in the UK won it

Wow … Winning is losing in this case.

@Ocat It would have been much smarter to take the car and then sell it.

2 things in life are guaranteed: death and taxes.

I don't see how this could count as taxable income as it's restricted to a membership fee being paid for. That said I am not a tax expert.

@hbkay that's the problem with purexbox, too much push squared Sony pony cross pollution.

Never really thought of that with these MS rewards, but yeah, that's a known thing for lotteries, game shows etc. If you win a million dollars on a lottery you likely come home with less than $500,000 that you actually won. The rest goes out in federal taxes, state taxes, municipal taxes, city taxes, and of course everything you use to buy with it has sales taxes on top. So a million dollar prize, post all the taxes is maybe $375-450k all tolled after the money is spent and the sales taxes applied? But things like winning cars on game shows, yeah, your "free" car just came with a $8,000 tax bill + all due this year.

@JayJ Because it's earnings from prizes, contests, etc which is its own entry type for "income". If they could tax oxygen they'd charge you for inhaling. I'm sure it's somewhere in the carbon trading legislation.

@Porridge2215
Well least better than USA on those taxes then.

I see the trolls are out in full force, today.

Makes sense. Not everyone can absorb that tax hit (or feel it is a good purchase). Like he said he would have to use GP for 10 years to break even. And MS could (not likely but still could) sunset GP in that time.

Eye Opener for everyone always complaining that giveaways and such are US only.

This situation is for ANYTHING. If you won a car, you're responsible for taxes as well. It's BS.

Something about this doesn't sound right. This is being served out as a payment not a lump sum. You should be claiming it each year you use it. I doubt the IRS is going to issue you a refund if GP shuts down in 10 years and you paid for 40.

@somnambulance reminds me of when Oprah gave cars to everyone in the audience.

Fracked up several with taxes

@Raw_Dawg MS is giving you X amount of dollars through this reward, which doesn't re-up your GP membership per year, but "for life" all at once.

MS will claim they gave you X amount of $$$ of value when they file their corporate taxes.

@rustyduck I may be wrong, but I don't think things like that would need to be reported unless you got several thousands of dollars in rewards.

Someone correct me if I'm wrong.

I know with crypto some people thought that's how it works, but there are now specific tax laws about crypto.

Haven't heard the same about small rewards(a couple hundred bucks at the most when you redeem your points for GP/gift cards/ etc.).

@NeutronBomb That's exactly what I was going to say, but that would just increase the value of the prize and increase the tax amount. That's how archaic the United States tax system is. It should be structured in a way that when someone wins a prize that whoever they won the price from has the ability to pay the taxes for them. That way people actually win prizes without it costing them anything.

@Lup Actually I think it's two.

Here's the IRS takeaway incase anyone is interested,

Non-cash prizes are subject to regular withholding as well—though the process is more complex. There are two options. The first is a tough sell for prizewinners because it asks them to pay the withholding tax to the organization. They would pay 24 percent of the fair market value of the prize after subtracting the ticket cost. The second option keeps the winner happy but costs the organization more. The organization pays the withholding tax on the winner’s behalf, but at a higher rate of 31.58 percent. The higher rate reflects that the winner acquired not only the prize, but also the value of having the organization pay the tax on it.

If Microsoft paid the withholding at the higher rate, they winner could've received the payout without having to claim taxes since taxes were already paid.

@Telin let me explain it to you like this. If you won the lotto and took payments instead of the lump sum and the payments lasted 40 years. You would pay taxes every year on it for 40 years. You wouldn't pay 40 years of taxes up front.

On top of that it's impossible to put an actual monetary value on this until it's used. If GP cease to exist there is no value. If the winner dies there is no value. If the winner no longer has an Xbox or it is broken there is no value. Now in a perfect world where none of these things happen it would be worth more then is stated.

@Raw_Dawg
This all depends on how the actual code redeems. If it is a one time code that bumps the account expiration to 40 years out from the day of activation, it would be considered a lumpsum prize, and would most likely be the case from an IT perspective, and less accounting paper work for Microsoft to be "once and done" with it. If they required a yearly code redemption across 40 years, then yes it would be taxed each year.

As for the monetary value, prize redemption items are calculated at their current market value per the time of acquisition. This is to avoid liabilities as you stated where a company goes out of business or terminates the service or even market swing. Unfortunately the term "life-time" only refers to life of the service/business or duration they are willing to adhere to.

Game shows would this to people with their prizes. Win cars and trips, but you are saddled with the taxable income.

@Jenim unless it's an actual credit to the account that could be spent in the Microsoft store or a Visa type gift card it wouldn't change anything. You still haven't actually received anything. As they said in the article it is being "metered out". If Microsoft did it like My Coke Rewards. Where they claim they are giving away a vacation worth up to $5000. Which neither is true. If you read the fine print. It's a gift card worth $5000 if you don't pay taxes on it. You are correct in the fact that Microsoft could set it and forget it. The thing is the lotto is capable of the same. They could put your winning in escrow or a trust. They would no longer have access to the winnings or have to think about it but either would you. The IRS can not make you claim something you haven't received.

Microsoft wasn't the concern. I think we all know that subscription services increase with time. We have seen it with Netflix, Amazon Prime, YouTube TV...etc. By the time this prize has actually been claimed GP will likely be $55 a month. If you were worried before about the IRS you should be just as worried at the end. The prize ended up being worth more than originally quoted. Which means you cheated the IRS.

Honestly I would expect the IRS to really care to much either way. What it would cost the IRS to collect on what this person claims they would owe would be close to half.

Although our taxes in the UK are expensive, I admit the US system just utterly confuses me. Good shout to the winner reading the fine print and avoid getting caught out. I’d do the same, not worth paying the tax man so much for a prize like that.

@fizban3332 Isn’t that the truth.

@Telin Must be the same with Mr Beast on You Tube, he’s always giving stuff away in America. Wonder if they take the winners aside off camera and explain the taxes they’ll have to pay?

Americans get their eyeballs robbed out!!! I mean the British government are scummy ***** but we don’t get screwed like the Americans!!!

I wouldnt have said no to that prize 😀♥️

US need to sort their weird tax system out

That's f-ed up. Thankfully in Canada that doesn't happen with prize/lottery wins, although that person could just not report it... 🤷‍♂️

As an accountant, this person is my new hero. Love it

why to pay tax for a free subscription? its like a free trial but for life. dunno why `microsoft or anyone should report this

For those outside the glorious shining city on the hill, here's a fun trivia: For years the IRS has been chronically late paying out owed refunds on taxes. I mean over 6 months late. That means they're holding in their bank, money that never belonged to them, it was accidentally (usually without choice) overpaid to them to begin with which people now call "tax day" where they get extra money which was never extra money, it was an overpayment in the first place.

Anyhoo....they've been paying interest on the late refunds, because they were earning interest in holding someone elses money unlawfully, it's interest the recipient missed, so they include the interest in the refund.

Then a few months later, on time, they send the slip showing how much interest was made so they can tax it.

In the US, there's federal income tax, state income tax, local income tax, sales tax (by state), social security tax (they claim you get it back while pushing the date ever farther past when you'll probably be dead), separate emergency services taxe (by municipality), city tax (in major cities), city sales tax (in select cesspools), property tax, property school tax, taxes on utility use, fuel tax, taxes on the existence of distribution of utility use. Sin taxes (tobacco, alcohol etc). That doesn't begin to cover insurance/medical, etc.

This should make you brits wonder why we shot at you because you were overtaxing us....

@Dezzy70 correct. We haven’t fully embraced the “American dream” yet. We had a good punt at the end of last year - and things like this could have been common place but luckily we said no. Taxing prizes is such a trickle down policy. Taking from the normos at every turn whilst allowing the rich to pay the least possible.

We do have to keep an eye on things like this mind you. They are never far away. Easy to bury a policy like this in a manifesto. It’s why politics is unfortunately important.

@sjbsixpack As soon as Americans kicked the British out over taxes...there was a tax rebellion that Washington extinguished. 😆

Then the USA's tax system became progressively worse in so many directions since the 1900s. Add subsidies on top of that, along with tax program companies lobbying Congress, and you got a pile of $#it no one wants to really change. Rearrange with mostly the same blocks? Always. Change? Absolutely not.