How to Report DFS Taxes and Manage Daily Fantasy Sports Winnings

Daily Fantasy Sports (DFS) winnings are taxable income, and failing to report them correctly can lead to penalties. Whether playing casually or competitively, understanding tax obligations is essential to avoid issues when filing returns.

DFS tax reporting involves more than just listing winnings—it includes handling entry fees, knowing which forms to use, and maintaining accurate records.

Income Classification

DFS winnings are taxable, but classification depends on participation level. The IRS does not have a specific category for DFS, so winnings are generally reported as either gambling income or self-employment income.

Casual players who enter contests occasionally and do not rely on DFS as a primary income source report earnings as “other income” on their tax return. These winnings are subject to federal income tax but not self-employment tax.

Frequent players who demonstrate skill-based decision-making and earn substantial profits may be classified as self-employed. In this case, winnings are reported as business income and subject to both income tax and self-employment tax, which is 15.3% in 2024. Unlike casual players, those classified as self-employed can deduct expenses such as research subscriptions, software tools, and internet costs, provided they are directly related to DFS activities.

Federal Forms for Winnings

DFS platforms report winnings to the IRS under certain conditions, meaning players may receive tax forms detailing their earnings. The most common forms issued are Form 1099-MISC and Form 1099-K, depending on the amount won and number of transactions.

Form 1099-MISC is issued when a player wins $600 or more in net earnings from a DFS operator. Form 1099-K applies when total payments exceed $20,000 and involve more than 200 transactions, though some states have lower thresholds.

Even if a player does not receive a tax form, all winnings must still be reported. DFS operators report net earnings—total prizes minus entry fees—but players should verify the accuracy of these amounts. If an incorrect figure is reported, contacting the DFS provider for a corrected form is necessary before filing taxes.

Handling Entry Fees

Entry fees affect taxable DFS winnings by determining net income. While winnings must be reported in full, players can deduct entry fees as a cost of participation. However, deduction treatment depends on whether DFS is classified as gambling or self-employment income.

Casual players can deduct entry fees only up to the amount of their winnings, treating them as a wagering expense. These deductions must be itemized on Schedule A (Form 1040) under gambling losses. Since the standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly, many DFS players may not benefit from itemizing unless their total deductions exceed these amounts.

For those treating DFS as a business, entry fees are considered an ordinary business expense and can be deducted fully on Schedule C (Form 1040). This reduces both taxable income and self-employment tax liability. Business expenses can also include data subscriptions, coaching services, and travel costs for live DFS events, provided they are directly tied to DFS activity. Proper classification of these deductions is necessary to avoid IRS penalties or audits.

State Tax Obligations

State taxes on DFS winnings vary depending on residence. While federal taxes apply uniformly, state tax rates range from 0% in states without an income tax, such as Florida and Texas, to over 13% in high-tax states like California and New York. Some states also impose additional local taxes.

Certain states require estimated tax payments if winnings exceed a threshold. For example, California requires quarterly estimated payments if total tax liability exceeds $500, while New York sets the threshold at $300. Failing to make these payments can result in penalties and interest charges. Some states, including Pennsylvania and Massachusetts, require DFS platforms to withhold state taxes on winnings above a specific amount, typically $600, even if the player does not receive a federal tax form.

Recordkeeping Essentials

Accurate recordkeeping is necessary for properly reporting DFS winnings and ensuring tax compliance. DFS platforms may not track every detail needed for tax reporting, so players must maintain their own documentation to substantiate income, deductions, and losses. The IRS requires adequate records in case of an audit, and failing to provide them can result in additional tax liabilities or penalties.

A detailed log of DFS-related transactions should include entry fees, winnings, losses, and related expenses. Using a spreadsheet or accounting software can help track these figures throughout the year. Copies of bank statements, PayPal transactions, and DFS account summaries serve as supporting evidence. For those treating DFS as a business, maintaining receipts for expenses such as software subscriptions, research materials, and tournament travel costs is necessary to justify deductions.