“In general, the IRS only requires you to report income that is yours. If lottery winnings you receive are split with other winners and you are the only person who receives a W2-G form, which shows the entire taxable portion of the lottery prize, the IRS expects you to report the whole prize on your return. If this happens and the winnings were really split between you and other winners, you have the option of reporting only your portion. If you do this, you also need to attach a statement to your return explaining that you only received a portion of the prize. On your statement, you need to list the amount you received and provide information about the other winners who received part of the winnings as well as the amounts they received. The IRS then checks the returns of the other people to see if they also claimed their portions. If the other winners do not report their prize, the IRS may require you to claim the whole amount, as shown on the W2-G form you receive.”
Reference: https://finance.zacks.com/can-lottery-winners-split-winnings-tax-returns-8894.html
There is no good way to split the withholding. That has to all go on Person A’s tax return. So, for example, you have a $9000 prize and $2000 was withheld for tax. You had $7000 to split. B & C get $3000 each and A only gets $1000. But A gets the other $2000 credited to his tax return, so he effectively gets a total of $3000 too. So, it looks like A owes B & C some more money at this time, if you originally split the $7000 equally.
As others have said, persons B and C simply report the $3000 gambling income without paperwork. It goes on line 8 of schedule 1.
If I were person A, I would enter the $9000 from the W-2G. Then I would enter a minus (-) $6000 on line 8 of Schedule 1* and call it "nominee recipient adjustment for gambling winnings". I would mail in my return and attach a statement.
* In TurboTax (TT), enter at:
- Federal Taxes tab
- Wages & Income
Scroll down to:
-Less Common Income
-Misc Income, 1099-A, 1099-C
- On the next screen, choose – Other reportable income - Answer yes to Any other Taxable Income -On the next screen, Enter the number with a minus sign (-) in front. Briefly explain at description.
