The 2025 football season is upon us, and millions of Americans will be drafting teams to compete in fantasy football. Many leagues involve paying money, with the winners taking home cash prizes. What many participants do not realize is that these prizes are considered taxable income and subject to federal and state taxes. This article highlights five key ways that playing fantasy football affects your taxes.
(1) Fantasy Football Winnings Are Taxable Income
Under Section 26 of the Internal Revenue Code, gross income is broadly defined as all income from whatever source derived. While many taxpayers think of this as income from salary and wages or capital investment, this definition applies as broadly as finding a $100 bill on the sidewalk. As it pertains to gambling winnings, which includes fantasy football, the amount that a participant wins each year is considered income and subject to taxation. Furthermore, while some states exempt certain lottery winnings from taxation, all states that levy an income tax require the taxpayer also to pay state income taxes. Thus, winning $1,000 in a fantasy football league can be subject to taxation as high as 50.3% (37% top federal tax rate plus a 13.3% top tax rate in California).
Importantly, according to IRS Topic No. 419, taxpayers must pay taxes on their gross (as opposed to net) fantasy football winnings. Thus, while some taxpayers who buy into their league for $200 and win $500 may view it as if they won $300, in actuality, the IRS views it and levies taxes based on $500 of winnings.
(2) Losing Money In Fantasy Football Might Be Deductible
While the rules appear to be harsh as they pertain to how the tax code taxes fantasy football participants’ winnings, there are opportunities for deductions for these gambling activities. As I discuss in a Forbes article, losses can be deducted to the extent of winnings. This means that if a taxpayer buys in for $200 and wins $500, the buy-in can be used as a wagering transaction to lower the taxable income related to the gambling activity.
However, there are two key caveats with this deduction. First, the deduction cannot exceed the winnings. In the above example, if the player buys in for $200 and only wins $100, then the deduction is limited to $100. Second, the deduction occurs “below-the-line”, meaning that the taxpayer can only deduct gambling losses if he or she itemizes their deductions. As noted by Tax Notes, millions of sports gamblers are not aware that this deduction only applies to those who are itemizing their deductions, leading to significant tax non-compliance.
(3) The Paper Trail For Documenting Fantasy Football Winnings Is Thin
While the tax code is fairly explicit as to whether taxpayers playing fantasy football will owe taxes on their winnings, the requirements for declaring this income to the tax authorities are remarkably scant. In fact, for most leagues, taxpayers will have to self-report their income on their tax forms since the cash won typically falls well short of the required reporting threshold ($600 in 2025, $2,000 in 2026, according to the IRS).
Whether or not the earnings get reported by the league commissioner does not excuse the taxpayer from reporting their winnings. However, absent some way of reporting the earnings, there is a very small paper trail connecting the taxpayer to this taxable income, leading many not to report it.
(4) Playing Daily Fantasy Football Leaves A Clearer Trail For The IRS
While some fantasy football participants might prefer to stick with the traditional gameplay with a draft and season-long competition, others have moved over to daily fantasy football via providers like FanDuel, DraftKings, and Underdog. These daily outlets provide unique betting opportunities to play. However, they also provide a much clearer paper trail for fantasy football. For instance, these outlets document the location of your buy-in as well as the exact amount won or lost. Even though receiving a tax form from these providers is still rare and only in situations with significant wins (i.e., more than 300X’s the value of the wager and more than $600), many are not reporting their winnings, which can lead to tax problems with the taxing authority if audited.
(5) The Deductions For Fantasy Football Losses Will Decrease in 2026
As I reported in Forbes, the One Big Beautiful Bill Act, signed into law on the 4th of July, significantly changed gambling rules, and these rules also impact fantasy football. Starting in 2026, deductions for fantasy football deductions will be limited to 90% of the loss. In the prior example of the participant buying in for $200 and winning $500, beginning next season, the deduction will be limited to $180 (90% of the loss), resulting in an additional $20 of taxable income.
Where this becomes problematic is that fantasy football participants who break even (i.e., win $200 on their $200 buy-in) will now face taxable income since they cannot deduct their entire loss. Thus, fantasy football participants in future years will need to carefully assess their tax liabilities, as they are going to owe taxes even if they do not make money.
While the tax rules governing fantasy football may appear to be strict and severe, there are numerous alternatives that participants may consider. For instance, leagues can forgo cash prizes and, instead, play for a ceremonial trophy that goes to the winner. Small prizes like a trophy are not subject to the same rules governing their income. Even beyond that, leagues may wish to consider becoming a free league to forgo tax implications. Given some of the issues surrounding the tax implications of winning money in fantasy football, help is on the way. Many, including the aforementioned Tax Notes article, call for reform to the rules governing the gambling tax rules. Even related to the recently passed One Big Beautiful Bill Act, Nevada lawmakers are already in the process of passing legislation to reverse the 90% deductibility rule, according to The Wall Street Journal. In the meantime, fantasy football winnings are considered taxable income, and participants should take note as they begin the 2025 football season.
