Prizes Are Taxable

By Amy E. Feldman

PHILADELPHIA (CBS) - When does winning actually wind up costing? When you have to pay the IRS.

Everyone who watches American Idol knows that Ford spends a ton of money to sponsor the show. Except, perhaps, the two people that each of the Idol finalists named as musical mentors who feigned shock when they were brought to the finale and given - a new FORD!!!

What may come as an actual shock, however, is the tax bill they will incur for winning the cars.

Everyone knows that you have to pay taxes on your income, but you may not realize that income doesn't mean just the money you earn but also includes the value of prizes that you receive which you have to report as miscellaneous income, be it a car, or a company trip, or even a smaller gift like a raffle.

And while people who win cash can put aside a portion for taxes (not that they do, but they could), people who get a noncash prize often have to sell the prize when it comes time to pay the piper.