In the Philippine jurisdiction, the taxation of prizes and winnings is a nuanced area of tax law governed primarily by the National Internal Revenue Code (NIRC) of 1997, as amended by subsequent legislation such as the TRAIN Law (Republic Act No. 10963). The classification of these gains determines whether they are subject to progressive income tax rates or final withholding taxes.

I. General Classification of Prizes and Winnings

The Bureau of Internal Revenue (BIR) distinguishes between "prizes" and "winnings" based on the nature of the gain:

Prizes: Generally derived from efforts, skills, or talents (e.g., essay writing contests, beauty pageants, or sports tournaments).
Winnings: Generally derived from luck, chance, or wagering (e.g., lotteries, horse racing, or casino games).

II. Taxation for Individual Taxpayers

For Resident Citizens, Non-Resident Citizens, and Resident Aliens, the tax treatment is as follows:

1. Prizes

Prizes of ₱10,000 or less: These are included in the taxpayer’s gross income and are subject to the graduated income tax rates (0% to 35%).
Prizes exceeding ₱10,000: These are subject to a 20% Final Withholding Tax (FWT). Since it is a final tax, the amount is no longer included in the annual income tax return (ITR).

2. Winnings (General Rule)

General Winnings: Most winnings (other than those from PCSO/Lotto) are subject to a 20% Final Withholding Tax, regardless of the amount.

3. PCSO and Lotto Winnings

Under the TRAIN Law, the exemption for Philippine Charity Sweepstakes Office (PCSO) and Lotto winnings was modified:

₱10,000 or less: Exempt from income tax.
Exceeding ₱10,000: Subject to a 20% Final Tax.

III. Taxation for Non-Resident Aliens

The status of the non-resident alien determines the rate:

Non-Resident Alien Engaged in Trade or Business (NRAETB): Generally follows the same rules as resident individuals (20% final tax on prizes >₱10k and winnings).
Non-Resident Alien NOT Engaged in Trade or Business (NRANETB): Subject to a flat 25% Final Withholding Tax on the entire amount of prizes and winnings, regardless of value.

IV. Corporate Taxation

For domestic and resident foreign corporations, prizes and winnings are typically treated as passive income subject to a 20% Final Tax. However, if the prize is earned in the actual course of business (e.g., a corporation winning a performance-based award related to its trade), it may be treated as ordinary business income.

V. Statutory Exemptions

Not all prizes are taxable. Section 32(B)(7) of the NIRC provides specific exclusions from gross income:

Prizes and Awards in Recognition of Achievements: Prizes made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement are exempt only if:

The recipient was selected without any action on their part to enter the contest or proceeding; and
The recipient is not required to render substantial future services as a condition to receiving the prize.

Sports Competitions: Prizes and awards granted to athletes in local and international sports competitions and tournaments, whether held in the Philippines or abroad and sanctioned by their national sports associations, are exempt from income tax.

VI. Administrative Requirements

The payor of the prize or winning is constituted as the Withholding Agent. They are responsible for:

Withholding the applicable final tax (20% or 25%).
Remitting the tax to the BIR using BIR Form 1601-FQ (Quarterly Remittance Return of Final Income Taxes Withheld).
Issuing BIR Form 2306 (Certificate of Final Tax Withheld at Source) to the recipient.

VII. Summary Table of Tax Rates (Post-TRAIN Law)

Type of Gain	Amount	Tax Rate (Resident/Citizen)
Prizes	₱10,000 and below	Graduated Rates (ITR)
Prizes	Over ₱10,000	20% Final Tax
Winnings (General)	Any amount	20% Final Tax
PCSO/Lotto	₱10,000 and below	Exempt
PCSO/Lotto	Over ₱10,000	20% Final Tax
NRA-NETB	Any amount	25% Final Tax