How Are Daily Fantasy Winnings Taxed? A Comprehensive Guide for DFS Players

Winning in daily fantasy sports (DFS) feels amazing. Whether it’s a high-stakes contest or just a friendly game with friends, walking away with extra cash makes drafting that perfect lineup all the more rewarding. But there's an important aspect of DFS that many players overlook until tax season rolls around — yes, we’re talking about taxes.

Regardless of whether you’re an experienced DFS player or new to the game, understanding how the IRS treats your daily fantasy winnings is crucial for staying compliant and managing your finances properly.

Disclaimer: The information provided in this article is for general informational purposes only and is not intended to serve as legal or tax advice.

Is DFS Considered Gambling or a Game of Skill?

First, let's address a common question among fantasy sports players and enthusiasts. Are DFS contests considered gambling? The answer to this question isn’t straightforward.

The federal government considers DFS to be a game of skill, not gambling, as players must use strategy, research, and knowledge to compete. However, this classification may vary across state laws and jurisdictions. Regardless of how DFS is categorized, for tax purposes, the IRS doesn’t differentiate between gambling winnings and earnings from skill-based contests like DFS.

To sum up, if you’ve made money playing DFS, the IRS sees this income as taxable, just like any other source of income, and you must report it accordingly.

Reporting DFS Winnings to the IRS

Small or Large Winnings? Always Report Them!

Whether you won $10 from a friendly DFS contest or took home $100,000 from a high-stakes tournament, all winnings must be reported to the IRS. That’s right, even if the amount is small, you are legally required to include DFS winnings as part of your taxable income.

The income is reported on Form 1040, the standard individual tax return. For most players, DFS winnings fall under "other income," sometimes requiring additional forms like Schedule 1.

When DFS Platforms Report Your Winnings

DFS platforms like Wanna Parlay, FanDuel, PrizePicks, and DraftKings are required to report earnings above a certain threshold to the IRS. Here’s how it works:

If you earned $600 or more in net winnings from one platform during a tax year and made withdrawals totaling that amount, you will receive a Form 1099-MISC from the platform.
For contests involving entry fees, some platforms issue a Form 1099-K to report your transactions if gross payments exceed $600.

It’s important to note that even if your earnings don’t meet these thresholds and you don’t receive these tax documents, you're still responsible for self-reporting all your DFS winnings.

State Obligations

While the focus may initially be on federal taxes, don't overlook your state’s tax obligations. Most states mirror federal tax laws and require you to report DFS winnings as part of your state taxable income. Check with your state’s tax authority for specific guidelines.

Can You Deduct DFS Expenses?

One slightly comforting aspect of DFS taxation is the ability to deduct certain expenses related to your play. However, this applies differently depending on whether you're categorized as a recreational player or a professional:

Recreational DFS Players

For recreational players, expenses like tournament entry fees may be deductible, but only to the extent of your winnings. These deductions are reported on Schedule A as miscellaneous itemized deductions. Unfortunately, due to changes from the Tax Cuts and Jobs Act (TCJA), these deductions are subject to a 2% floor and are no longer deductible for most taxpayers through 2025.

Example:

If you win $5,000 in a DFS contest and have $3,000 in entry fees, your taxable income from DFS is $2,000. However, if your winnings are under $600, reporting obligations may differ, but expenses cannot exceed your winnings.

Professional DFS Players

If you're a professional player (someone who plays DFS for a living), you may qualify to deduct additional expenses beyond entry fees. These could include:

Subscription fees for DFS tools and resources
Travel and lodging costs for tournaments
Equipment such as computers or monitors used for DFS-related activities

Professional players report their earnings and expenses on Schedule C, Profit or Loss from Business, which also allows for a standard deduction based on net earnings.

Self-Employment Taxes for DFS Professionals

DFS winnings for professionals are subject to self-employment taxes. This means in addition to federal and state income taxes, you'll need to pay self-employment tax, which includes Social Security and Medicare contributions. The current rate is 15.3%, but half of this amount is deductible for income tax purposes.

Avoiding Penalties with Estimated Taxes

DFS players can sometimes face significant underpayment penalties if they don’t meet their annual tax obligations. To avoid penalties:

Pay Estimated Taxes: If you expect to owe $1,000 or more in taxes, consider making quarterly estimated tax payments using Form 1040-ES.
Withholding Elections: You can opt to have taxes withheld directly from your platform earnings, much like employer payroll withholding.

Strategies for Simplifying DFS Taxes

Handling taxes as a DFS player can feel overwhelming. Here are some tips to ensure you stay organized and compliant:

Keep Detailed Records

Document your winnings, entry fees, and any related expenses. Use spreadsheets or dedicated tax software to track your transactions.

Rely on Official Tax Documents

Always use Forms 1099-MISC or 1099-K issued by DFS platforms to ensure accurate reporting.

Work with a Tax Professional

If you’re earning significant sums or playing DFS professionally, consult a certified public accountant (CPA) or tax advisor familiar with DFS taxation.

Consider Advanced Tools

Many DFS analytics tools now offer built-in tracking for your entries, winnings, and other tax-related details.

Don’t Overlook Software

Tax preparation programs like TurboTax or H&R Block often include workflows for entering DFS income and deductions.

Staying Compliant and Enjoying the Game

Understanding how your DFS winnings are taxed doesn't need to be a headache. By staying organized, keeping accurate records, and consulting with tax professionals when needed, you can avoid financial surprises and focus on what truly matters: drafting that perfect lineup and enjoying the game you love.

DFS is supposed to be fun, even if the IRS asks for its share. Play smart, manage your finances responsibly, and reap the rewards of your hard-earned victories.