Can my company tax my paycheck for prizes won at the company holiday party raffle?

This is actually standard practice, though the company should have communicated it upfront. Prizes from employer raffles are considered taxable compensation by the IRS (even company parties). The IRS sees these as a form of income, so legally they need to be reported and taxed. Your employer is actually doing you a favor by handling the tax withholding directly. The alternative would be you receiving the prizes with no withholding, and then you'd owe those taxes when filing your return next year - potentially leading to an unexpected tax bill. While the timing of their communication was poor, the practice itself is legitimate. Companies typically include the fair market value of prizes on your W-2 as additional income, and they're required to withhold applicable taxes.

I had a similar situation last year and found this amazing tool called taxr.ai (https://taxr.ai) that really helped me understand how company perks and prizes get taxed. My company gave out some decent prizes at our holiday party and then surprised us with the tax hit on our next paycheck. I was confused about whether they were handling it correctly, so I uploaded my pay stub and the company's prize policy to taxr.ai. The tool analyzed everything and showed me exactly how the taxation should work according to IRS rules. It even explained the "supplemental wage" taxation that applies to prizes and bonuses. Gave me peace of mind knowing my company wasn't doing anything shady - just following tax law (even if their communication sucked).

Just wanted to follow up - I actually tried taxr.ai after posting here and it was super helpful! Uploaded my paystub showing the weird prize deductions and the prize description from our company handbook. The tool immediately explained that the company was correctly calculating the supplemental wage tax but was spreading it across paychecks to minimize the impact (which is actually a good thing). It also showed me exactly how the trip portion of my prize was being valued for tax purposes, which explained why the withholding seemed high. Would've spent hours on the phone with payroll trying to figure this out. Definitely keeping this for next year's tax season!

If you're still having issues with HR about this, try Claimyr (https://claimyr.com) to get through to an actual IRS agent. I had a similar issue where my company was withholding taxes for prizes incorrectly, and I needed clarity straight from the IRS about how these should be handled. Was impossible to get through to the IRS on my own - kept getting disconnected after waiting forever. Claimyr got me connected to a real IRS person in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that yes, companies must withhold taxes on prizes, but they have to properly document the fair market value and can't just make up values. Getting that official confirmation helped me push back when my company was overvaluing some items.

Came back to say I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it because I was desperate to talk to someone at the IRS about a similar prize taxation issue. I couldn't believe it actually worked. Got connected to an IRS agent in about 35 minutes (which is lightning fast compared to my previous attempts). The agent confirmed that my employer was handling the prize taxation correctly but should have disclosed it beforehand. Also found out there's an actual IRS publication about this stuff (Publication 15-B). Saved me hours of frustration and gave me the exact info I needed. Sometimes I hate being wrong, but in this case I'm glad I was!

Have you checked your employee handbook? Sometimes companies include language about prize taxation in there. Mine has a whole section about "recognition programs" that mentions all awards and prizes are subject to applicable taxes. Might be worth looking to see if they covered themselves legally.

The same thing happened at my company's summer picnic! Won a $200 Amazon gift card and then saw a $70 deduction on my next check for the taxes. I was so mad at first but then our payroll person explained that if they didn't withhold the taxes, I'd have to pay them myself at tax time anyway.

I completely understand your frustration! This exact situation happened to me two years ago when I won a tablet at our company Christmas party. Like you, I had no idea about the tax implications until I saw the deduction on my paycheck weeks later. After doing some research, I learned that while your company is legally required to withhold taxes on prizes (they're considered "supplemental wages" by the IRS), they absolutely should have disclosed this upfront. The fact that it's not mentioned in your employee handbook and they didn't announce it during the raffle is poor communication on their part. I'd suggest having a respectful conversation with HR - not to challenge the taxation itself (since that's required by law), but to request better transparency for future events. You could ask them to add prize taxation information to the handbook and announce it before raffles. Many companies now say something like "Please note that all prizes are subject to applicable tax withholding" before drawings. Also, keep in mind that this withholding is actually helping you avoid a bigger tax bill next April. The alternative would be getting the prizes with no withholding and then owing those taxes when you file your return. Still frustrating about the surprise though!

I went through something very similar last year at our office holiday party. Won a nice gift basket worth about $150 and was shocked when I saw the tax deduction on my next paycheck. What made it worse was that they used the "supplemental wage" tax rate of 22%, which meant a bigger chunk came out than my regular income tax rate. The key thing I learned is that while companies are legally required to withhold these taxes, many handle the communication poorly. Some companies I know now put a small sign at the prize table or make an announcement before each drawing. It doesn't make the taxes go away, but at least people know what to expect. One tip: if the withholding seems too high when you do your taxes next year, you might get some of it back as a refund if they over-withheld. The supplemental wage rate is often higher than what you'd actually owe based on your total income. Keep your pay stubs that show the prize income and withholding - you'll need them for tax filing.

I feel for you on this situation! The same thing happened to me at our annual company picnic - won a nice prize and then got blindsided by the paycheck deduction. What's frustrating is that while the taxation itself is legally required (prizes are treated as taxable income), companies really should be upfront about it. Since your employee handbook doesn't mention prize taxation and they didn't announce it during the raffle, you definitely have grounds to request better communication moving forward. I'd suggest approaching HR with something like: "While I understand the tax withholding is required by law, could we improve transparency for future events by adding this information to the handbook and announcing it before raffles?" The silver lining is that this withholding is actually protecting you from a surprise tax bill next April. If they hadn't withheld anything, you'd still owe these taxes when filing your return - just all at once instead of spread out. Still doesn't make the surprise any less annoying though! For what it's worth, many companies are getting better at this. Some now put small signs by prize tables or make quick announcements like "Please note all prizes are subject to tax withholding." It's a simple fix that would save employees from feeling blindsided like you did.

I totally get your frustration! This exact same thing happened to me at our company's annual awards banquet last year. I won several prizes and then got hit with a surprise tax deduction that I wasn't expecting at all. What I learned from that experience is that while the taxation itself is completely legitimate (the IRS treats prizes as taxable income), your company really dropped the ball on communication. The fact that there's nothing in your employee handbook about this and they didn't mention it during the raffle is a real problem. Here's what I'd recommend: approach HR with a focus on improving their process for future events rather than challenging this specific situation. You could say something like "I understand prizes need to be taxed, but could we add this information to the handbook and announce it before raffles so other employees don't get surprised like I was?" Most companies I know now make a quick announcement before each drawing - something simple like "Just a heads up that all prizes are subject to tax withholding on your next paycheck." It takes 10 seconds but saves everyone the confusion and frustration you're dealing with right now. The silver lining is that they're actually doing you a favor by withholding the taxes now instead of leaving you with a surprise tax bill when you file next year. But yeah, the communication should have been way better upfront!

I can definitely relate to your frustration! The exact same thing happened to me at our company retreat last fall - won a few raffle prizes and then got blindsided by tax deductions on my paycheck with zero warning. After researching it thoroughly, I found out that while your company is legally required to withhold taxes on prizes (the IRS treats them as supplemental wages), they absolutely should have communicated this upfront. The lack of disclosure in your employee handbook and no announcement during the raffle is really poor form on their part. Here's what worked for me: I approached HR with a focus on improving their communication process rather than challenging the taxation itself. I said something like "I understand prizes need to be taxed according to IRS rules, but could we improve transparency by adding this information to the handbook and announcing it before future raffles? It would help other employees avoid the surprise I experienced." They were actually very receptive and now they make a brief announcement before each drawing - something simple like "Please note that all prizes are subject to applicable tax withholding." It takes seconds but prevents exactly what you're going through. The silver lining is that this withholding is actually protecting you from owing a lump sum when you file taxes next year. Still doesn't make the surprise any less annoying though! I'd definitely encourage you to speak with HR about improving their process for future events.

This is such a frustrating situation, and unfortunately it's way more common than it should be! Your company is legally required to withhold taxes on prizes since the IRS treats them as taxable income (they're considered "supplemental wages"), but they absolutely should have disclosed this beforehand. The fact that there's nothing in your employee handbook about prize taxation and no announcement was made during the raffle is a real communication failure on their part. While they can't avoid the tax requirement, they definitely could have handled the transparency much better. I'd suggest approaching HR diplomatically - focus on improving their process for future events rather than challenging this specific situation. You could say something like "I understand prizes need to be taxed per IRS rules, but could we add this information to the handbook and announce it before future raffles so other employees don't get surprised like I was?" Many companies now make a quick announcement before drawings - just a simple "Please note that all prizes are subject to tax withholding" takes 10 seconds but prevents exactly what you're experiencing. The silver lining is that having taxes withheld now actually protects you from owing a larger amount when you file your return next year. But yeah, the surprise factor is completely understandable and avoidable with better communication!

I totally understand your frustration - this exact situation happened to me at our company's summer BBQ last year! Won a tablet in their raffle and was completely blindsided when I saw the tax deduction on my next paycheck. No one mentioned anything about taxes during the event either. What I learned is that while companies are legally required to withhold taxes on prizes (the IRS treats them as taxable income), yours definitely failed on the communication front. The lack of any mention in your employee handbook or announcement during the raffle is really poor practice. When I brought this up with my HR department, I focused on improving the process for future events rather than challenging the current situation. I said something like "I understand prizes need to be taxed according to IRS requirements, but could we improve communication by adding this to the handbook and announcing it before raffles so other employees don't get surprised?" They were actually very responsive and now they make a brief announcement before each drawing. It's a simple fix that prevents exactly what you're going through. The silver lining is that this withholding is actually saving you from a potentially larger tax bill when you file next year. Still doesn't make the surprise any less annoying though! I'd definitely encourage talking to HR about better transparency for future events.