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Comment by throwaway287391 | Hacker News Reader

> Prizes are tax-free here

Off-topic but: this always seemed like the most bizarre thing to me. What's the rationale? Why do governments want to incentivize people winning "prizes" over "honest work"?

(My HN engineer brain also wants to know what the distinction is that prevents companies from calling any payment for a one-time contract a "prize" for completing the work, but I'm sure there's some unsatisfying "you know it when you see it" or "laws are people not code" type answer.)

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I can answer for the UK - the system is designed so that most people don't explicitly interact with the tax system. The only people that need to do so is the self-employed, running a business, or very highest earners. For everybody else, they can take advantage of tax breaks without filling in any forms, just by opening the right bank accounts/pensions or getting certain services from their employer. When they qualify for benefits, like Child Benefit, it gets paid separately into their bank account.

A surprising number of tax benefits are possible this way - even the income tax deduction on charitable giving is done by getting the charity to do the paperwork instead of the individual taxpayer.

So when it comes to taxing something that isn't going to be a significant tax stream and would require people to fill in declarations, the solution is-- just don't tax it.

And the answer to your second question is, the payment would be "income" (defined as payment for completing work) and would fall under income tax. There's no exception in income tax for prizes because prizes aren't even income at all, as you don't work for them. But if you still tried it, it would fall under the General Anti-Abuse Rule.

Right, that makes sense. Thanks for the answer.

> And the answer to your second question is, the payment would be "income" (defined as payment for completing work) and would fall under income tax. There's no exception in income tax for prizes because prizes aren't even income at all, as you don't work for them.

Is it really so clear cut? I'm thinking of things like programming competitions -- in a sense you "work" to win a prize at one of those, don't you? So then what stops my employer calling all of my work as a programmer a programming competition? You could say "the competition organizers can't profit off of the work", but is that always true? Netflix could've legally profited off of the entries in the Netflix competition (even though they didn't), right? Similar for Kaggle contests. Would prizes from those count as taxable income? And even on something like a game show, they're profiting (or hoping to) from your participation/appearance.

My company frequently has campaigns with prizes: we pay the taxes, so the prize looks "tax free" to the winners. It is just where the tax and paperwork burden is placed, on the payer or on the winner.

Is it taxed at (average?) income tax rates or VAT rates or what? Unless it's taxed at the highest marginal income tax rate, it seems like there's still at least some loophole potential.

My first instinct is that its the same logic as to why gambling gains are tax free: because otherwise the losses would be tax deductible.

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