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The answer to do you pay taxes on sweepstakes winnings is yes. A cash prize or gift card you redeem from Sweeps Coins is taxable income, even when no tax form arrives. The harder question is losses, because a 2003 IRS memo found that no-purchase-necessary sweepstakes prizes are not wagering gains.
Applied to sweepstakes casinos, that reasoning suggests Gold Coin purchases may not reduce the tax on your prizes. This guide covers the federal rule, the 2026 form thresholds, a worked example and the records to keep. Clovr is not a tax advisor, so confirm your own return with a tax professional.
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Do You Pay Taxes on Sweepstakes Winnings From Sweeps Coins
The IRS treats prizes as income. Its prize guidance says a prize won in a drawing, quiz program, contest or other event must be included in your income.
The same guidance gives one way out. If you refuse to accept a prize, you do not include its value in your income.
Gold Coins and Sweeps Coins are treated differently
Gold Coins have no prize value, so playing with them creates no prize to report. Sweeps Coins are the currency that is redeemable for cash prizes, which is where the income question starts.
Mega Bonanza’s Sweepstakes Rules (version 2.0, May 27, 2026) say its Sweeps Coins have no value on their own. Its rules describe the cash prize or gift card you redeem them for as the prize. For how the two coins work, see Clovr’s guide to Sweeps Coins explained.
Gift cards and other noncash prizes count too
A noncash prize is still a prize under the IRS rule. The IRS Form W-2G instructions (Rev. January 2026) tell payers to use a noncash prize’s fair market value for reporting and withholding.
Mega Bonanza’s rules value each qualifying Sweeps Coin at $1.00 for a gift card prize. Keep the redemption confirmation that shows the card’s value.
Where Sweepstakes Prizes Go on Your Federal Return
Prize income goes on Schedule 1 of Form 1040. On the 2025 Schedule 1, line 8i is labeled “Prizes and awards.”
Line 8b is a separate line for wagering income. IRS Topic 419 lets losses offset only wagering income you report, which the section on losses explains below.
When a Sweepstakes Casino Sends You a Tax Form
A tax form is a reporting rule for the payer, not a tax-free allowance for you. Two IRS forms can apply to prize payments, and both thresholds rose for payments made in 2026.
Form 1099-MISC rose from $600 to $2,000
The One Big Beautiful Bill Act, signed July 4, 2025, raised the Form 1099-MISC threshold from $600 to $2,000. The new figure applies to payments made after December 31, 2025.
What counts is everything one payer sends you in a calendar year. Several smaller prizes from the same sponsor that total $2,000 or more still trigger the form. H&R Block notes that prizes usually appear in box 3, “Other income.”
| Year the prize is paid | Form 1099-MISC threshold per payer | Status |
|---|---|---|
| 2025 | $600 | Prior rule |
| 2026 | $2,000 | One Big Beautiful Bill Act, section 70433 |
| 2027 and later | $2,000, adjusted for inflation | Annual IRS adjustment |
Form W-2G applies to larger sweepstakes payments
The Form W-2G instructions list sweepstakes as their own reporting category. For 2026 payments, the threshold is $2,000, and the prize must be at least 300 times the amount paid to enter.
The same instructions require 24% federal withholding when proceeds, minus the entry cost, exceed $5,000. If you do not give the payer your taxpayer ID, a separate 24% backup withholding applies.
Mega Bonanza’s rules do not say which form it issues. Its rules make you responsible for the tax either way, so report every prize whether or not a form arrives.
No form does not mean no tax
The National Association of Tax Professionals warns that missing a Form 1099 does not make income tax-free. A $1,500 prize year with no form is still $1,500 of reportable income. Whatever the amount, the answer to do you pay taxes on sweepstakes winnings stays yes.
Worked Example of Tax on a Sweepstakes Prize
The example below uses Mega Bonanza’s published redemption rate of $1.00 per qualifying Sweeps Coin. It shows how a single cash redemption flows into your federal tax.
| Step | Value | Source of the number |
|---|---|---|
| Sweeps Coins redeemed for a cash prize | 500 SC | Example amount |
| Cash prize at $1.00 per SC | $500 | Mega Bonanza Sweepstakes Rules 6.3 |
| Income added to Schedule 1 | $500 | IRS prize rule |
| Federal tax at a 10% top bracket | $50 | $500 x 10% |
| Federal tax at a 37% top bracket | $185 | $500 x 37% |
Federal brackets run from 10% to 37%, so the same $500 prize can cost $50 or $185. Your other income for the year sets which bracket the prize falls into.
Now stretch it across 2026. If you redeem $1,500 in total from one operator, you sit below the $2,000 threshold and may get no form. If you redeem $2,500, you cross it, but the $1,500 and the $2,500 are both fully taxable.
Coin Purchases May Not Offset Sweepstakes Prizes
Deducting what you spent on Gold Coin packages is an unsettled part of sweepstakes casino taxes. Clovr found no IRS ruling that addresses sweepstakes casinos by name, so the closest guidance is a 2003 IRS memo.
What the 2003 IRS memo decided
IRS Technical Advice Memorandum 200417004 reviewed a taxpayer who won a corporate marketing sweepstakes. He entered by mail and wanted to offset the prize with his wagering losses.
The IRS said a wager needs three elements, which are a prize, chance and consideration. Because the taxpayer furnished no consideration for the chance to win, it ruled the prize was not a wagering gain.
That result blocked the loss offset. The memo carries a caveat, because section 6110(k)(3) bars anyone from citing it as precedent.
Why this matters for sweepstakes casino players
Sweepstakes casinos such as Mega Bonanza use the same no-purchase-necessary model, with a mail-in entry that awards free Sweeps Coins. The 2003 memo reviewed a product promotion, not a sweepstakes casino, so it does not settle your case.
Topic 419 ties the loss deduction to the wagering income you report. Prizes reported only as prizes and awards may have nothing to offset, so ask a tax professional first.
The wagering loss rules changed in 2026
Where income does qualify as wagering income, losses are still limited. IRS Topic 419 allows the deduction only if you itemize on Schedule A and keep records.
The deduction also cannot exceed the wagering income you reported. From the 2026 tax year, the One Big Beautiful Bill Act limits the deduction to 90% of wagering losses.
A repeal bill, H.R. 10357, passed the House Ways and Means Committee 38 to 5 on September 16, 2026. It had not passed the full House as of early October 2026, so the 90% limit still applies.
State Income Tax on Sweepstakes Prizes
Federal tax may not be the whole bill. Your state may also tax the same prize, so check your state revenue department’s rules on prize income.
Mega Bonanza’s rules state that it is not responsible for federal or state taxes on a prize redemption. Whether you can play at all also depends on where you live. Verify current laws in your jurisdiction before playing.
Records to Keep From Every Sweepstakes Casino
Good records let you match any tax form and support the numbers you report. Keep these items for each sweepstakes casino you use:
- Save every redemption confirmation, with the date, the Sweeps Coins redeemed and the prize value.
- Save gift card delivery emails that show each card’s value.
- Keep Gold Coin purchase receipts in case a tax professional asks to review them.
- Keep every Form 1099-MISC or W-2G that an operator sends you.
- Save a copy of the Sweepstakes Rules version that applied on the day you redeemed.
What Mega Bonanza’s Rules Say About Taxes
Mega Bonanza puts the tax duty on the player in plain terms. Rule 6.5 of its Sweepstakes Rules (version 2.0, May 27, 2026) says entrants are solely responsible for taxes on prize redemptions.
The same rules set the minimum balances for redeeming a prize. You need at least 50 qualifying Sweeps Coins for a cash prize or 10 for a gift card, each worth $1.00.
No purchase is necessary to play at Mega Bonanza. Its mail-in entry (AMOE) credits 4 Sweeps Coins for each valid handwritten request. Players must be 21 or older, and the rules call for age and identity checks before any redemption.
Visit Mega Bonanza to read its rules in full, or see Clovr’s Mega Bonanza review for its redemption terms. To compare other options, start at the sweepstakes casinos hub or the free SC coins guide.
Frequently Asked Questions
Do sweepstakes casinos send a 1099?
They may. For prizes paid in 2026, Form 1099-MISC is required once one payer sends you $2,000 or more in a year. Mega Bonanza’s rules do not name the form it issues.
Do you pay taxes on sweepstakes winnings under $2,000?
Yes. The $2,000 figure only decides whether a payer files a form. Every prize you accept is income under the IRS prize rule, including small redemptions and gift cards.
Are Gold Coins taxable?
No. Gold Coins have no prize value and cannot be redeemed, so they create no income. Tax applies to the prizes you receive when you redeem Sweeps Coins.
Can you deduct Gold Coin purchases from sweepstakes prizes?
Possibly not. A 2003 IRS memo found that no-purchase-necessary sweepstakes prizes are not wagering gains, which blocked a loss offset. Ask a tax professional before claiming one.
Does a sweepstakes casino withhold tax from prizes?
Under the IRS Form W-2G instructions, payers must withhold 24% when sweepstakes proceeds exceed $5,000. Mega Bonanza’s rules do not describe its own withholding practice.
Do you owe state tax on sweepstakes prizes?
You may. State rules on prize income differ, so check your state revenue department. Mega Bonanza’s rules make players responsible for both federal and state taxes on redemptions.
Related Reading
These Clovr guides cover the rest of the sweepstakes picture.
- How sweepstakes casinos work is Clovr’s explainer on the sweepstakes model.
- Are sweepstakes casinos legal is Clovr’s guide to the legal side of sweepstakes play.
- Sweepstakes casinos by state is Clovr’s index of state guides.
- Highest payout sweepstakes casinos is Clovr’s guide to sites ranked by payout.
Clovr may earn a commission when you sign up through affiliate links on this page. This never affects our reviews, which stay independent and unbiased.
Sweepstakes play should stay fun. If you or someone you know needs support, visit the National Council on Problem Gambling at ncpgambling.org or call 1-800-GAMBLER.
