I don't know if I believe the 40% or not. I posted the following on the expo forum when the topic was first brought up there:
Okay, I'm not an accountant so i could be off. However, I have been doing our taxes for the last 14 years. I reviewed a 1040 form for 2007 and the instructions and this is what I come up with. "Other Income" is listed on line 21 under "Income". Form states to see page 24 in the instructions, which I did. Yes, prize winnings are listed there, but so are other incomes, such as reimbursed expenses, ect. Anyway, if you add your expo earnings to line 21, it is included in your total income on line 22. Then, after subtracting some of your deductions from your total income, you arrive at your Adjusted Gross Income (AGI) on line 37. You then take your AGI, subtract your standard or itemized deductions, credits, ect., you arrive at the amount you are taxed on. You then fall in a certain bracket and you pay the amount depending on whether you are single, married, ect. I saw nowhere in the form where you pay 40% specifically. Maybe if you where in that bracket due to other income.
Anyway, from what I see, we are not taxed 40%, even if it is reported as prize winnings. Again, I could be wrong. However, had I not read this post, I would have done my taxes the way I stated above and would not even thought twice about the possibility of paying 40%.
Once someone does their taxes, could they please update us. As soon as we have our W2s I plan on doing mine and I'll keep y'all updated.