Pick’Em Contests

The legality of online pick’em sites (such as PrizePicks and Underdog) is back in the news this week. The legal debate over whether these sites should be treated as Daily Fantasy Sports sites or sports betting sites does not seem to be much closer to a resolution.

However, we do not need a legal ruling to determine the taxability of earnings from DFS sites. I covered this in more detail last year, when the IRS announced it would continue its audit of Draftkings.

As a reminder, any DFS activity should be tracked and reported in the same manner as gambling winnings. Some DFS operators will issue Form 1099-MISC for your net yearly earnings. The 1099-MISC may accurately reflect your net profit, but the IRS requires all taxpayers to report their gross gambling winnings and losses on their tax return. 

As gambling income, you will need to track your gross winnings and gross losses by session. While the IRS has not defined a DFS session, we can apply guidelines used in other areas of gambling:

Pick’Em Contests: Each entry is considered its own session (similar to sports betting).

Daily/Weekly Contests: Each entry is considered its own session. If you submit more than one lineup in the same tournament, each lineup will be considered its own session.

Best Ball: Each entry is considered its own session. Since most best ball entries are season-long, you will not recognize the result of the session until the season is over.

The good news: You can include losses from your DFS activity to offset any other gambling income. This could reduce your total taxable income if you were unprofitable in DFS, but profitable in, say, poker.

The bad news: When you file your tax return, you need to report your gross DFS winnings with the rest of your gambling winnings. If you are a recreational gambler (or live in a state that does not allow a deduction for gambling losses) this could result in negative tax consequences.