With nearly 75 million Americans participating in fantasy football this year alone, it’s probably a good time to straighten a few things out.
One of the most common questions of fantasy football participants is whether they need to report their cash winnings on their tax return.
The short answer is this: yes, you do need to report any winnings you earn from your fantasy football league on your tax return. The long answer is a little more detailed, so stay with us.
It’s all about the money
Fantasy football used to be about winning for the sake of winning. At one time, the point of fantasy football was competing against your friends and family members, not earning money — so what has changed? Out of the 75 million Americans participating in fantasy football, 80% of them are planning on playing fantasy sports for the rest of their lives.
Even more interestingly, out of the 75 million Americans playing fantasy football, about 64% of them are now playing for money. Some may wonder how this is possible in a country that doesn’t allow internet gambling. The big name fantasy sports companies, such as DraftKings and FanDuel, have found themselves a loophole in the law: daily fantasy sites are actually considered games of skill. The Unlawful Internet Gambling Enforcement Act of 2006 says that gambling is illegal when it is a game of luck. Therefore, playing fantasy football for money is, for the time being, legally allowed in the United States.
The tax facts
While your fantasy football experience doesn’t fall into the category of online gambling, it does have to be filed as another source of income on your tax return. Your prize winnings are already being reported by the fantasy football operator using Form 1099-MISC, Miscellaneous Income, written as Other Income rather than using Form W-2G, Certain Gambling Winnings.
For participants of fantasy football, winnings should be reported on Form 1040 as Other Income on line 21. Even prizes that aren’t strictly cash should be considered income, such as gift cards, tickets, or basically anything that has monetary value.
You do have to report all your individual winnings, even if they are small. Be sure to keep track of your winnings from the individual sites you use, as well as any fees you paid.
Who is exempt?
Some people can get away with not having their winnings taxed. People who are participating in fantasy football as part of their business or trade do not have to report their income on Schedule C. This, of course, depends on certain factors such as how often the participant engages in the activity, whether the participant actively engages in activities similar to this one on their own time, how much they earn from fantasy football, what the expertise of the participant is, and so on.
Net payments and earnings
If you’ve looked into this before, you are likely acquainted with the terms “net payments” and “net earnings.” These are two ways that your income may be reported to you, so it’s important to know what exactly you’re looking at when you do receive that report.
Net payments refer to the amount of money you have won after the deposits (such as the site fees) are subtracted from your overall winnings. It is simply your total winnings minus your fees.
Net earnings, on the other hand, involve any kind of earnings you received from the fantasy football participation. It could include any bonuses or money from referrals that you’ve earned, in addition to your winnings. Once you take these total earnings and subtract the paid fees, the outcome is what’s considered your “net earnings.”
Fees and deductibles
Expenses during your fantasy football experience are indeed subtracted from your total earnings, but it is a bit more complex than that. In terms of tax deductibles, fees or expenses are only deductible up to the amount of prize money you’ve won. For instance, if you earned $3000 and paid an entrance fee of $1000, that entire fee is deductible (since the prize money is more than the fee). If you paid that same entrance fee of $1000 and won $300 in prizes, then your deductible is $300.