The king has reclaimed his crown! James Holzhauer, who won 32 straight "Jeopardy!" games earlier this year before losing to Emma Boettcher, just beat Boettcher and Francois Barcomb to win the 2019 "Jeopardy!" Tournament of Champions. For his latest victory, the quiz-show wiz will pocket $250,000, which brings his total "Jeopardy!" winnings for the year to a whopping $2,712,216. But, of course, Holzhauer won't be able to keep all that money. The IRS and the State of California are going to want a piece of the action, too. Their tax bite was already going to be high, but just by winning the Tournament of Champions, Holzhauer will owe about $125,750 more in federal and state taxes.
Holzhauer's total "Jeopardy!" winnings will put him in the highest federal income tax bracket for 2019, which means he'll pay tax on at least a portion of his winnings at a 37% rate. As a result, he'll likely have to pay around $942,000 of his winnings to the IRS. (Since Holzhauer is married, we used the tax rate schedules for taxpayers filing a joint return.)
Even though Holzhauer lives in Nevada, where they don't have an income tax, he'll also owe California income tax because "Jeopardy!" is taped in the Golden State. California's highest marginal tax rate is 12.3%. However, there's an additional 1% surcharge on all taxable income over $1 million that's imposed to help pay for mental health services in California. For a joint filer, that comes to around $320,000 in California tax.
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When you add it all up, the combined federal and state income tax on Holzhauer's winnings comes to about $1.262 million — or approximately 46.5% of his winnings. That leaves a little over $1.45 million that he'll actually get to keep for himself. To make sure the IRS and California get their cut, the taxes will be withheld from his overall payout.
There's a lesson for the rest of us in this story: Prizes are taxable income (for non-cash prizes, tax is based on the fair market value). So, if you ever win a game show, lottery or even a local raffle, don't go out and blow all your winnings without first putting some of it aside to pay the government.
QUIZ: Can You Answer Jeopardy's Trickiest Investing Questions?
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