Prize money – When does the fiscal authority have to have a share?

Anyone who receives prize money should quickly clarify the issue of the tax liability situation. Whether or not prize money is subject to income tax will be determined by the type of prize money. It will remain tax-exempt if the underlying prize recognises a lifetime achievement or an entire oeuvre, honours the personality of the prize winner, distinguishes a personal attitude or singles out a role model function. This includes, for example, Nobel prizes because these are awarded for the outstanding personality of the prizewinner and his/her groundbreaking overall achievement.

By contrast, prize money that is related, in economic terms, to the activity carried out by the person who has been distinguished will be liable to tax. This will be the case where, in economic terms, the presentation of the award has the nature of a performance-related remuneration and is both the objective and consequence of the activity that is carried out (e.g. design concept competition for architects).

Likewise, university staff who, for example, are distinguished with academic awards have to declare the prize money under remuneration because, in this case, there is a clear connection to the professional research activities at the university. Moreover, an economic connection exists if the award promotes professional activities or demonstrably generates additional income.