Do I Have to Pay Taxes on PrizePicks Winnings?
Understand your tax obligations on PrizePicks winnings, including federal and state requirements, necessary forms, and accurate recordkeeping.
Winning money through PrizePicks can be an exhilarating experience, but it’s important to understand the tax implications. The Internal Revenue Service (IRS) requires individuals to report all income, including earnings from fantasy sports platforms like PrizePicks.
Federal Tax Obligations
The IRS mandates that all gambling winnings, including those from fantasy sports platforms, be reported as income under the Internal Revenue Code (IRC) Section 61. This includes even modest amounts. Your tax rate for PrizePicks winnings depends on your overall income and tax bracket, which ranges from 10% to 37% as of 2024. For example, if your income places you in the 24% bracket, your winnings will be taxed at that rate.
PrizePicks winnings may also be subject to backup withholding if you fail to provide a correct taxpayer identification number (TIN). The backup withholding rate is 24%. To avoid this, ensure your TIN is accurate.
Tax Forms
Understanding the tax forms associated with PrizePicks winnings is essential for compliance.
W-2G
The W-2G form is issued for gambling winnings that meet specific thresholds, such as $600 or more and at least 300 times the wager. While fantasy sports winnings may not always fall under traditional gambling, platforms may still issue a W-2G if the criteria are met. If you receive this form, report the income on Form 1040, Schedule 1, under “Other Income.”
1099-MISC
The 1099-MISC form reports miscellaneous income, including prize winnings that do not meet W-2G criteria. PrizePicks may issue a 1099-MISC if your winnings exceed $600 in a calendar year. The IRS requires you to report this income even if you do not receive the form. Keep detailed records to substantiate your claims if audited.
1099-K
The 1099-K form is used for reporting payment card and third-party network transactions. While less common for PrizePicks winnings, it may be issued if you exceed $600 in transactions through a third-party network. Reconcile the amounts reported on the 1099-K with your records to ensure accuracy.
Withholding Requirements
The IRS mandates withholding on certain gambling winnings, but rules vary depending on the platform and amount won. For fantasy sports winnings, automatic withholding is not common unless specific criteria are met. The withholding rate aligns with federal income tax rates, ranging from 10% to 37%. Backup withholding may apply if you fail to provide a valid TIN or if your winnings exceed certain thresholds.
State-Level Considerations
State tax obligations for PrizePicks winnings vary widely. States like Florida and Texas do not impose personal income taxes, while states such as New York and California have higher tax rates. In states with income tax, gambling winnings are often taxed at the standard state income tax rate. Be aware of any state-specific deductions or credits that may offset your tax liability. Consulting a tax professional familiar with state and federal laws can provide tailored advice.
Recordkeeping
Maintaining accurate records of your PrizePicks winnings is critical. Keep a detailed log of all transactions, including dates, amounts, entry fees, and related expenses. Digital tools or financial software can simplify this process. Save copies of all relevant tax forms and correspondence with PrizePicks or the IRS. Thorough recordkeeping ensures accurate reporting and provides support in case of an audit.
Penalties for Inaccurate Reporting
Filing taxes incorrectly can lead to penalties. The IRS may impose an accuracy-related penalty of 20% of the underpaid tax for negligence or disregard of rules. Filing late can result in additional penalties, with a failure-to-file penalty of 5% of unpaid taxes per month, up to a maximum of 25%. The failure-to-pay penalty accrues at 0.5% per month. Interest may also be charged on unpaid taxes and penalties. To avoid these issues, report all income accurately, file on time, and pay owed taxes promptly. Consulting a tax professional can help ensure compliance and reduce the risk of errors.