When Does Draftkings Pay Winnings
[toc]This is the first in a four-part series about paying taxes on daily fantasy sports.
When Does Draftkings Pay Winnings Today
In outright bets which include a limited selection of participants, such as Top Nationality, Group Betting, etc., DraftKings reserves the right to apply Tattersalls Rule 4 on any non-starter. Dead Heat rules will apply except for cases where a play-off has determined a better finishing position. Fantasy sports winnings of at least $600 are reported to the IRS. If it turns out to be your lucky day and you take home a net profit of $600 or more for the year playing on websites such as DraftKings and FanDuel, the organizers have a legal obligation to send both you and the IRS a Form 1099-MISC. If you receive your winnings through PayPal, the reporting form may be a 1099-K. DraftKings and FanDuel throw a wrench in things. State law regarding contests through pay-to-play fantasy games, like DraftKings and FanDuel, vary by state. Last year, judgments by the states of New York and Massachusetts classified this style of fantasy sports as gambling. Have them send you a $5,000 check — put $500+ or so into paypal and leave the rest on — then if you want move another $500 once/twice over to paypal in the following week or so. And true on EMAC ’s stuff — u will get “ CREDITED ” back to how the supply of your funds/$$$ came in via DK.
Did you receive a tax form as a result of your daily fantasy sports play in 2015? It may look like this, or this. Even if you played and won and did not receive any tax forms, there still may be an obligation to report and pay taxes on winnings.
Reporting taxes from DFS play in 2015 is not straightforward for players. The legal battles and legislative developments surrounding DFS in the United States leave us with unresolved questions that could affect how players sort through their tax situations.
Today begins a series of posts on DFS and taxes in the United States. This post will cover the impact of tax forms that players may receive as a result of DFS play.
In general, the sites do not consider DFS play as gambling, and issue tax forms based upon that assumption. To date, the Internal Revenue Service has not commented on whether it considers DFS play, or fantasy sports games in general, as gambling.
Gambling or not, all winnings on DFS sites are taxable under the Internal Revenue Code.
Some players mistakenly believe that DFS winnings are taxable only if the site issues them a tax form. What are the forms, and what do they mean?
Form 1099-MISC, Miscellaneous Income
A common practice for a DFS site is to issue a Form 1099-MISC to a player if the player won $600 or more on the site during the year. The amount of winnings should appear in Box 3, “Other income.” A copy of the form is also sent to the IRS.
How does a DFS site determine whether a player reached the $600 threshold?
FanDuel, for example, claims it computes a player’s “net profit” using the following formula for the calendar year:
Net profit = Prize Winnings – Entry Fees + Bonuses + FDP Entries
FDP stands for FanDuel Points, which are earned by players when they enter into a money game. As the points accumulate, the player may use the points to enter into paid contests.
It appears that if FanDuel issues a Form 1099-MISC, the amount reported captures all of the player’s activity for the year on the site. If FanDuel does not issue the form, the player could apply the same formula above to determine taxable winnings for the year from playing on the site.
Despite how the DFS sites calculate winnings, the IRS may nonetheless take the position that the formula above should include entry fees paid only from winning contests and exclude those from losing contests.
There is at least one indication of this position in a Private Letter Ruling issued by the IRS in 2005. In the PLR, the IRS advised an online gaming site on the appropriate Form 1099-MISC formula for computing player winnings from various games such as checkers, golf, 9-ball pool and mah-jongg.
Though a PLR binds only the IRS and the requesting taxpayer and cannot be cited as precedent by other taxpayers, this PLR may indicate how the IRS may rule on similar fact patterns in the future, as applied to DFS.
A lesson here is not to assume that all DFS sites apply the same formula as FanDuel. A player should know what is and is not included in each site’s Form 1099-MISC formula in order to be able to also report the items not included, if applicable. More on this in the next post.
Form 1099-K, Payment Card and Third Party Network Transactions
There is another tax form at play in the DFS world, the Form 1099-K. This form is not issued by DFS sites themselves. Instead it is issued by credit card or third-party merchants, such as PayPal.
In short, a payment merchant is required to issue Form 1099-K if a taxpayer receives more than 200 incoming payments that in the aggregate exceed $20,000.
A potential unfortunate outcome here is the double reporting of income.
Suppose my FanDuel net winnings for 2015 were $25,000, and I make more than 200 withdrawal requests (however unlikely) from PayPal that total $25,000. I will receive a Form 1099-MISC from FanDuel and a Form 1099-K from PayPal. My income from DFS play is $25,000. The IRS gets a copy of both forms and based on these forms alone, the IRS may think that my income was actually $50,000, rather than $25,000.
A more likely scenario is a DFS player who also runs an online business and receives payments through PayPal and other merchants. A 1099-K does not specify the activities generating the receipt of funds, so the amount reported on a 1099-K could represent a blend of DFS income and other income.
A lesson here is recognizing the 1099-K triggering thresholds and the added complications that could arise when tax forms are issued from two different companies on the same activity. It is important to remember that if the taxpayer receives fewer than 200 incoming payments from the merchant, the 1099-K will not be issued. Limiting the number of incoming payments may help avoid having to provide an explanation to the IRS later on.
Key takeaways on 1099s
- Winnings from DFS play is taxable income whether or not a tax form is issued.
- Winnings from DFS play is taxable income whether or not the activity is considered gambling.
How the income and expenses are reported to the IRS depend on whether DFS play is considered gambling. We will get into that next time.
Disclaimer: Nothing contained in this article is specific tax advice, as each person’s situation is different. Consult a tax professional to discuss particular facts and circumstances.
The 2017 NFL season is in full swing. And if you’re like many Americans, you’re monitoring your fantasy football team like it’s your full-time job.
The number of people playing fantasy sports these days is tremendous. Already this year, 57.4 million people have participated in a fantasy league across the United States and Canada.
Many participate for the comradery among friends, some join their office league for a little friendly competition and others – aka the girls – form a team so they can brag when their strategy to build a killer team roster proves superior to that of their male counterparts.
But, there’s always that group of people who are in it for one reason only – the money.
If you’re playing for a cash prize or to win a dream vacation this year, there are a couple of things to pay attention to in addition to total rushing yards, completed passes and who’s on the injured player list.
Here’s a breakdown of what fantasy football and your taxes really means.
Participating in most pay-to-play fantasy football leagues is not considered gambling.
Money or prizes (tickets to the big game anyone?) from fantasy football come with a few tax consequences, however the earnings are typically treated as hobby income.
This is because fantasy leagues are not based on an actual team and winnings are not dependent upon the scores or performance of a real team.
For tax purposes, fantasy sports are considered a recreation activity.
Even if playing consumes all of your free time (and let’s be honest, maybe some work time), your main goal is probably not to earn a living from it.
Therefore, in the eyes of the IRS, participation in fantasy sports leagues isn’t considered a business and is not subject to more rigorous gambling taxes.
Taxes On Draftkings Winnings
However, you still have to report the winnings on your Federal tax return. And, you are subject to income taxes.
If you earn over $600, you’ll receive Form 1099-MISC in the mail. This form reports your winnings over that amount.
Hobby expenses are deductible, but it’s complicated.
As a hobbyist, you can deduct your expenses up to the amount of income you receive from participation.
Fantasy expenses, such as an entrance fee, can reduce all income from prize money.
For example, if you paid $200 to enter a fantasy league, and won $1,000, you would report the net amount of $800 as hobby income on your tax return.
That seems simple, right? Well, this is where it gets tricky.
While you can use those expenses as deductions, you must itemize those deductions. That can be time-consuming and difficult to track.
Plus, hobby expenses are only claimed as itemized deductions if they are over 2 percent of your Adjusted Gross Income (AGI).
If you aren’t sure what that means, AGI is your total income minus certain expenses. Common expenses for the average American include items such as student loan interest, moving expenses and self-employed health and retirement expenses.
So, for example, if your AGI is $50,000, 2 percent of $50,000 is $1,000. That means you would need other fantasy expenses to be over $1,000 if you wanted to deduct them.
If you plan to take the standard deduction this year, meaning you‘ll take a straight-up deduction as outlined by the IRS, tracking those expenses may not be worth your while. You’re better off spending that time figuring out who will play in your flex spot.
But remember, that doesn’t let you off the hook for reporting that income!
DraftKings and FanDuel throw a wrench in things.
State law regarding contests through pay-to-play fantasy games, like DraftKings and FanDuel, vary by state.
Last year, judgments by the states of New York and Massachusetts classified this style of fantasy sports as gambling.
While some states have concrete laws in place, other legislators are still actively debating the legality of these systems.
Because of the uncertainty regarding the regulations, it’s a good idea to double check your state’s stance before participating.