The White Lotus Tax Lessons: Navigating Gift Taxes, Lump Sum Payouts, Hush Money, and the IRS

The season finale of the popular TV show “The White Lotus” left fans with more than just a dramatic plot twist. It also provided a timely tax lesson that can be applied to real-life situations. When Belinda, one of the main characters, receives a $5 million payout from Greg in exchange for her silence, she may have thought she hit the jackpot. However, as we’ll explore in this article, large sums of money can come with significant tax implications that can quickly eat into your windfall.

You Should Know:

• Receiving a large sum of money, such as a settlement, can have significant tax implications. It’s essential to understand how to report it to the IRS so that you can claim it correctly on your taxes.
• Payouts classified as hush money can significantly impact the taxes you owe.
• Payouts classified as gifts are not considered taxable income for the recipient. That said, the person giving the gift may be subject to gift tax if certain thresholds are met.

Gift or Hush Money?

When dealing with a large sum of money, one of the first questions that comes to mind is how to classify the payout for tax purposes. In Belinda’s case, she could have tried to label the $5 million as a gift from Greg, which would have resulted in no tax liability for her as the recipient. However, the payout would most likely be seen as hush money by the IRS. 

Whether a recipient is required to report a large payout on their tax return depends on whether it is considered a gift.  According to the IRS, a gift is money, property, or assets given to someone without receiving anything in return.  Instead of the recipient being taxed on the money received, the person who gives the gift is subject to gift tax and would need to file a gift tax return for the amount over the annual gift tax exclusion, which is $19,000 for 2025 ($18,000 for 2024). The gift tax ranges from 18% to 40% depending on the taxable transfer amounts. But it doesn’t necessarily mean the gifter will pay gift taxes because the Lifetime Gift Tax Exclusion is $13.99 million for 2025. 

In Belinda’s case, it’s clear that Greg was trying to buy her silence, which means the IRS would likely consider the payout as hush money or non-disclosure payment, not a gift. This classification can have significant tax implications for both parties involved.

Reporting Hush Money to the IRS

Because the payout is most likely considered hush money and not a gift, Belinda would need to report it as income on her Form 1040. Specifically, she would include it on Schedule 1, which is used to declare nonwage income, such as gambling earnings or prize money. 

Hush Money Half Gone

So, how much hush money will Belinda keep? Due to the classification, she will be taxed at the highest federal tax rate of 37%, plus 11% as a Hawaii resident. This would leave her with just over 50% of the original $5 million payout.

Tax Lessons Learned

Belinda’s situation may seem extreme, but it highlights the importance of understanding the tax implications of large payouts. Whether you’re receiving a settlement, inheritance, or you’ve won the lottery, it’s essential to understand how the payment is classified to ensure you’re reporting your income correctly.

Here are some key takeaways from Belinda’s tax situation:

• Know the classification of your large payout: Understand the difference between a gift, hush money, and non-disclosure payment, as this can significantly impact your tax liability.
• Large payouts mean substantial taxes:  If you receive a large payout, don’t make plans for the entire amount since you can probably expect to pay almost half in taxes.
• Work with a tax expert:  If you receive a large payout, our TurboTax Live tax experts can prepare your taxes for you.  And when you file your taxes with TurboTax Live, you’ll be able to talk to a TurboTax Live tax expert year round to ensure that you’re making the right money moves for your tax situation.