Tax treatment of prizes

Under Section 32(B)(7)(c) of the Tax Code, there are two requisites that must be met for awards/prizes to qualify for exemption or exclusion from gross income: (a) the recipient was selected without any action on his part to enter the contest or proceeding; and (b) the recipient is not required to render substantial failure services as a condition to receiving the prize or award.

If the winners in a contest do not meet the requirements as laid down under Section 32(B)(7)(c) of the Tax Code, the cash awards/prizes given to individuals will be subject to tax and consequently to withholding tax. Under Section 24(B) of the Tax Code, as implemented by Section 2.57-1 of Revenue Regulations No. (RR) 2-98, a 20% final withholding tax is imposed on prizes and winnings derived by individuals from sources within the Philippines, except prizes amounting to P10,000 or less.

If the prize and/or winning is P10,000 or less, there is no requirement on the part of the payor to withhold the 20% final tax, but the income recipient (winner) is required to file an income tax return as prescribed under Sections 51 and 52 of the Tax Code and declare the amount of his prize/winning in his income tax return; the amount shall be subject to tax under Section 24(A) of the Tax Code.

(BIR Ruling No. 316-2013, August 8, 2013)

Tax Brief – September 2013

Punongbayan and Araullo