Gonna win your office pool? The IRS wants to know

If your bracket picks still have a good chance of winning the office pool, you need to plan on paying taxes on your jackpot.

Winning the office pool could put a couple hundred dollars in your pocket, but in many states, it’s not exactly legal. But it is taxable.

Some 40 million Americans filled out brackets before it got underway last week, according to the American Gaming Association. They have put down more than $2 billion through more than 70 million brackets. That’s more than the number of votes either Barack Obama or Mitt Romney got in 2012, something certified public accountant Ian Prescott calls “outrageous.”

We spoke to Prescott about money that’s a part of NCAA basketball office pools. While in many cases they’re illegal, Prescott said the winnings are always taxable.

“Whenever you receive the cash, and there’s no threshold for that,” Prescott said. “If you receive $10, that’s taxable. If you receive $1,000 dollars, that’s taxable.”

Prescott said by law, you’re supposed to report all winnings — whether they’re from an office pool, raffle or a casino. In fact, casinos will hand you a tax form and also report your winnings to the IRS. It’s not too difficult to add to your tax form, he added.

“It just goes on your federal return. And then your state … takes your federal income and makes the adjustments and that’s not an adjustment it would back out,” he said.

MSN Money reports many casinos have now rigged their slot machines to cap payout at $1,199. Because they don’t have to report smaller jackpots. But the winners do, Prescott said.

“Even if you don’t get a tax document, it’s still taxable,” he said. “You should report it on your tax return.”

So what happens if you don’t report your March Madness windfall and then the IRS finds out? Prescott says they can make you pay interest and penalties.

“I wouldn’t go bragging if you’re not going to put it on your tax return,” Prescott said.

Brackets are often filled out in the open in offices. But, Prescott says, if the IRS decides to make an example out of some office, it would not look good if employees used company resources such as computers, printers or copiers. Employees should use their own resources to make an office bracket.