America has watched the winning reign of “Jeopardy!” phenom James Holzhauer, a Las Vegas pro sports gambler, with fascination. And it is likely the Internal Revenue Service has been tuning in as well, as he rakes in millions.
It was revealed on Monday that Holzhauer lost during his 33rd appearance, netting him an additional $2,000 for his second-place finish. That brings his total winnings to $2,464,216 – a little more than $58,400 shy of the record held by Ken Jennings. His average per-game winnings were $77,000 per episode and he answered correctly 97 percent of the time.
The 35-year-old also notched the record for the most money won in a single episode and the IRS wants its cut.
Game show winnings are taxed as ordinary income, with the highest rate at 37 percent.
Holzhauer is a resident of Nevada, which charges no state income tax. However, the prize was won in California – where Holzhauer will face obligations as a non-resident, Richard McGowan, associate professor of the practice in the finance department at Boston College, told FOX Business. He will be subject to the maximum rate in California.
Generally, a winner can receive a credit against taxes in his or her home state based on the payments made in California. However, given that Nevada has no state income tax, this would not apply to Holzhauer.
Also unfortunate for Holzhauer is the fact that he can no longer claim miscellaneous itemized deductions, K. Eli Akhavan, partner and chair of the Private Client and Wealth Preservation Group at CKR Law, told FOX Business.
Overall, McGowan, expects that Holzhauer will take home about 52 percent to 53 percent of his winnings – which would net him between $1.2 million to $1.3 million.
It will be pretty difficult for Holzhauer to get around his tax liabilities, but one way he could avoid at least some of the obligations is by donating to charity, McGowan said.
Holzhauer is likely used to the intricacies of tax laws thanks to his career as a professional sports gambler. With gambling debts, however, bettors can write off losses.
Nevertheless, Akhavan warns that Holzhauer should take the proper precautions to safeguard his new wealth.
“Due to his newfound fame, Holzhauer may become a target for frivolous creditors,” Akhavan said. “Asset protection trust planning should be considered to help protect Holzhauer’s newfound wealth.”
Ken Jennings still holds the Jeopardy record, winning more than $2.52 million in regular season play and a total of $3.196 million including tournaments.