Recent statistics show that in 2022, there were more than 50 million people playing fantasy sports in the US. If you participate in fantasy sports leagues, you need to know your tax obligations. Whether you win big or small, consider setting aside a portion of your fantasy sports winnings for the IRS.
This post discusses IRS taxes on fantasy sports that you should be aware of this league season.
Do the IRS Tax Fantasy Sports Just Like Gambling Winnings?
The IRS treats income from fantasy sports winnings like any other cash prize, including gambling winnings. If you net a profit of $600 or more from playing fantasy football or other fantasy sports, you have to report your winnings to the IRS.
Report all income earned from fantasy sports either as “other income” on Schedule 1 for Form 1040 or as business income on Schedule C.
Do You Have to Pay Taxes on DraftKings, FanDuel, BetMGM, and Other Fantasy Sports Bets?
If you are lucky to take home a net profit of $600 or more for the year playing on DraftKings, FanDuel, BetMGM, and other fantasy sports sites, the IRS requires that you report the winnings you earned. Fantasy sports sites and apps must send you (and the IRS) a Form 1099-MISC. In some cases, they will send a W-2G instead.
How Do Fantasy Sports Sites and Apps Determine Who to Send Form 1099-MISC?
Fantasy sports sites calculate a player’s net profits to determine the players who get the 1099 forms.
They leverage one of the following formulas to determine when you hit the $600 level:
- Fantasy Sports Net Profit = Winnings + Bonuses – Fees.
- Fantasy Sports Net Profit = End of Year Balance + Withdrawals – Start of Year Balance – Deposits
How Do You Report Fantasy Sports Winnings on Your Tax Return?
You report winnings from fantasy sports on Form 1040 Schedule 1 (“other” income) or on Schedule C (business income). Note that if you report your winnings as 1040 income, the IRS considers your fantasy sports as a hobby, and you cannot deduct losses.
How Do I Report Fantasy Sports Winnings as a Business?
If you play fantasy sports as a business, you will report a net profit as business income using Schedule C. One benefit of this approach is that you can also report your fantasy sports losses. However, before you can claim fantasy sports as a business and not a hobby, you must meet the following requirements:
- You participate in fantasy sports regularly
- You treat the sport as a business activity and your goal is to make a profit (i.e., you earned a profit from fantasy sports in three of the past five years)
Will The IRS Know If You Don’t Report Fantasy Sports Winnings?
Major fantasy sports sites and apps (DraftKings, FanDuel, BetMGM, etc.) have an obligation to send winners IRS Form 1099-MISC which contains all the information they need to report fantasy sports winnings for taxes. This same information is sent to the IRS, so the IRS knows if you misreport or fail to report your winnings.
What Do You Do If You Don’t Receive 1099 From a Fantasy Sports Site?
As mentioned earlier, fantasy sports sites send Form 1099-MISC to all winners. If you do not receive a 1009, however, it does not mean you won’t pay taxes on your fantasy sports winnings. Whether you receive a 1099 or not, you are still accountable for reporting your fantasy sports income if it is over $600. You should always accurately report your winnings on your tax return.
How Much Tax Do You Pay on Fantasy Sports Winnings?
If you win more than $600 playing fantasy sports, you will likely pay a flat 24% tax. Some fantasy sports sites and apps may even require you to file a W-9, so they can withhold 24% of your winnings for federal taxes.
Can You Write Off Fantasy Sports Losses?
In general, taxpayers may deduct fantasy sports losses provided they can prove they play fantasy sports as a business. However, the IRS does limit the available deduction on losses. The general rule for writing off gambling losses is that you can never deduct more for the losses than you report for income. For example, if you win $2,000 in one fantasy league and lose $2,500 in another league, your fantasy sports deduction is limited to $2,000.
Remember, you can only claim your losses if you report your wins. Always keep in mind that reporting fantasy sports losses involves itemizing your deductions instead of taking the standard deduction.
To recap, fantasy sports winnings over $600 should be reported to the IRS. If you do not report your winnings, you will get a letter from the IRS and owe interest and penalties for not reporting this income.
If you need help navigating the complexities of fantasy sports taxes, get started for free below or schedule a free call.
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