photo credit: Mark Bowen: Scripps National Spelling Bee
The National Spelling Bee (NSB) champions made history Thursday night. For the first time in the history of the bee, there was an eight-way tie. (There had never been more than two co-champs before and even those were extremely rare until recently.) First prize is $50,000 in cash and the bee sponsors decided that the prize money will not be split. Each speller will take home $50,000. All spellers are under 16 years old, due to spelling bee eligibility rules. Under current law, kiddie tax rules will apply on their unearned income over $2,200.
To the best of my understanding, spelling bee prizes are not considered wages or self-employment income in a ¨trade or business¨ so they constitute unearned income subject to kiddie tax. So the prize money in excess of $12,750 will face federal taxes at the maximum 37% tax rate. State taxes may also apply.
In addition to the $50,000 in cash prize, there are hundreds of dollars of prizes like reference books from Encyclopedia Britannica and Merriam-Webster, whose fair market value is also subject to taxation at the kiddie tax rates.
Note: As Kay Bell reported last month, Congress is currently considering changes to the Kiddie Tax rules because of unintended impacts on children in Gold Star families.