Octochamps may be facing big tax bills

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.