The IRS May Tax You More in 2023 If You Play Fantasy Sports — Here’s What To Know
Now that a new tax year is underway and new laws go into effect, things are about to get quite serious for anyone betting on fantasy sports — and it could end up becoming a losing game for taxpayers. According to the IRS, “You must report all gambling winnings,” even for sports bets. That itself is not necessarily new information to many who engage in the pastime. Any earnings must be reported on Form 1040 or Form 1040-SR.
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But what may not be as well known is that the methods many utilize to pay for fantasy sports betting (and receive winnings) could now wind up under intense IRS scrutiny. So before you place those Super Bowl bets this week, you might want to know what’s at stake.
It all hinges on the new threshold reporting for third-party settlement organization (TPSO) transactions. As GOBankingRates previously reported, the American Rescue Plan of 2021 requires anyone dealing with more than $600 in business transactions involving Venmo, PayPal and other third-party payment systems to report those on their returns (beginning in tax year 2023).
The reporting threshold is currently $20,000 for 200-plus transactions but will soon be reduced to $600 on any number of transactions in 2023.
Per Fox News, fantasy sports betting platforms like FanDuel or DraftKings allow options like Venmo and PayPal to facilitate bets and payouts, so if you bet (win or lose) more than $600 on the third-party app, you can expect to get a 1099-K form next year. Gambling losses can only be deducted by those engaging in an itemized deduction (and who keep all receipts), further threatening many taxpayers who prefer the standard deduction.
These changes not only pertain to fantasy sports betting, but selling event tickets — or any transactions on TPSOs.
It’s important to know how to ensure you’re not getting taxed twice (in the case of a sports betting payout), or on money that is not taxable / business income (i.e. if your friend sent you $25 for your birthday).
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Keep copious records: You’ll want to keep a log of transactions that happen through Venmo, PayPal or other third-party apps to denote what is considered “income” (such as betting earnings or tips if you use the platforms for personal services) and what is considered a gift or nontaxable transactions.
Save wager receipts: This is important if you have losses on your bets — receipts can help deduct from your earnings to bring down your taxable amount.
Use Zelle or checks: Per Fox News, Zelle currently doesn’t fall under TPSO guidelines, and the safest option, overall, is to utilize checks.
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