By Justin Ash
Fantasy football has been rapidly gaining in popularity as of late. Most of our readers have probably played at least once and many likely play in multiple leagues (hopefully not at work). Some fantasy football leagues are played on paid sites like DraftKings or FanDuel, and these sites claim to pay out millions in winnings every year. How is this not illegal gambling, you may ask? It’s because these sites operate within a perfectly legal loophole allowing wagering on games of skill (wagering on games of chance is illegal in nearly every U.S. state). There will likely be a crackdown on these sites, as Federal agencies are beginning to take notice and question whether or not these sites should be required to obtain gambling licenses much like a Las Vegas casino. Look for conservative politicians to take a stand against these sites on a bully pulpit as well.
Following a cease and desist order mandating that the sites stop accepting money from New Yorkers a New York Supreme Court justice has allowed the sites to continue operating until the matter can be fully examined. This is likely just the first step in a long legal battle over what constitutes illegal gambling. This hinges on how the courts will classify fantasy sports; as either a game of chance or a game of skill. We expect other states to follow suit soon.
If you are a weekend fantasy football warrior, don’t worry. We expect the Feds to focus their attention on the paid sites and not on those of us that play occasionally for fun with a few friends. However, there are some potential pitfalls to avoid. Don’t forget that these winnings are fully taxable, whether they are considered gambling winnings or not. If you receive a Form 1099 reporting your winnings you must report that income on your tax return in order to avoid an IRS notice. Lastly, if your winnings are substantial then paying estimated tax is advisable.
If you have fantasy football or gambling winnings and are unsure of how much to pay in to cover the taxes, contact us so that we may prepare a comprehensive plan for you and advise you if any estimated payments are necessary.