How Does Paying Taxes Work on DraftKings: Your Complete Guide to Sports Betting Tax Obligations in 2025

Picture this: you've just hit a massive parlay on DraftKings, your phone is buzzing with congratulations, and you're already planning how to spend your winnings. But then reality hits—what about taxes? If you're wondering how does paying taxes work on DraftKings, you're not alone. Thousands of sports bettors find themselves confused about their tax obligations when those wins start rolling in.

The truth is, DraftKings tax responsibilities are more straightforward than most people think, but the recent changes in 2025 have added some new wrinkles that every bettor needs to understand. Whether you're a casual weekend warrior or someone who takes sports betting seriously, knowing your tax obligations isn't just smart—it's legally required.

In this comprehensive guide, we'll break down everything you need to know about DraftKings taxes, from reporting thresholds to the new winner's surcharge that's got everyone talking. We'll also cover the different tax forms you might receive, state-specific considerations, and practical tips to keep you on the right side of the IRS.

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Key Takeaways:

All DraftKings winnings are taxable, regardless of whether you receive a tax form
DraftKings issues W-2G forms for wins of $600+ that are 300 times your wager
1099-MISC forms are sent for net winnings over $600 in fantasy sports
A new 3.2% winner's surcharge applies in high-tax states starting January 2025
You can deduct gambling losses up to your winnings if you itemize deductions
Proper record-keeping is essential for accurate tax reporting

Understanding DraftKings Tax Basics

Let's start with the fundamental question: how does paying taxes work on DraftKings? The answer is simpler than you might think. Every single dollar you win on DraftKings is considered taxable income by the IRS, just like your regular paycheck or any other income source.

This applies whether you're playing daily fantasy sports, placing sports bets, or trying your luck at DraftKings Casino. The IRS doesn't distinguish between different types of gambling—if you win money, you owe taxes on it.

What Counts as Taxable Winnings?

When we talk about DraftKings tax obligations, it's important to understand what actually counts as taxable income:

Sports betting winnings: Any profit from successful bets
Daily fantasy sports prizes: Winnings from DFS contests
Casino game winnings: Profits from slots, table games, and other casino offerings
Promotional bonuses: Some bonus winnings may be taxable
Tournament prizes: Winnings from betting tournaments or contests

The key thing to remember is that you're taxed on your net winnings, not your total handle. If you bet $100 and win $150, you're only taxed on the $50 profit, not the full $150.

Federal vs. State Tax Implications

Understanding how does paying taxes work on DraftKings requires knowing that you're dealing with both federal and state tax obligations. Federally, all gambling winnings are subject to income tax at your regular tax rate. There's no special gambling tax rate—your DraftKings winnings get added to your other income and taxed accordingly.

State taxes are where things get more complicated. Some states have no income tax at all, while others may have specific gambling tax rates or withholding requirements. We'll dive deeper into state-specific considerations later in this article.

Tax Reporting Thresholds: When DraftKings Reports Your Winnings

One of the most confusing aspects of DraftKings taxes is understanding when the platform will actually report your winnings to the IRS. Just because you don't receive a tax form doesn't mean you're off the hook—but knowing these thresholds helps you prepare for tax season.

W-2G Reporting Thresholds for Sports Betting

For DraftKings Sportsbook and Casino activities, the platform must issue a Form W-2G when your winnings meet these specific criteria:

$600 or more in winnings AND
The winnings are at least 300 times your original wager

Let's break this down with some examples:

Example 1: You place a $10 bet and win $500. Even though you won $500, you won't receive a W-2G because your winnings aren't 300 times your wager ($10 × 300 = $3,000).

Example 2: You place a $2 bet on a long-shot parlay and win $650. Since you won more than $600 AND your winnings are more than 300 times your $2 wager, DraftKings will issue a W-2G.

This threshold explains why most regular sports bettors don't receive W-2G forms—it typically requires hitting a big parlay or placing very small bets on long odds.

1099-MISC Thresholds for Daily Fantasy Sports

For DraftKings Daily Fantasy Sports and Pick6, the reporting threshold is different and much lower:

Net winnings of $600 or more during the calendar year

The calculation here is: Prizes won minus entry fees plus bonuses = net profit

If your net profit exceeds $600 for the year, you'll receive a Form 1099-MISC by January 31st of the following year. This makes it much more likely that regular DFS players will receive tax forms compared to sports bettors.

1099-K Considerations

With recent changes to 1099-K reporting thresholds, DraftKings might also send you this form under certain circumstances. For 2024, the threshold is $5,000 in payments regardless of transaction count. However, starting in 2025, the threshold returns to $20,000 in payments with more than 200 transactions.

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Types of Tax Forms You'll Receive

Understanding the different tax forms is crucial for properly reporting your DraftKings winnings. Each form serves a specific purpose and requires different handling on your tax return.

Form W-2G: Certain Gambling Winnings

The Form W-2G is the most common tax form serious sports bettors will encounter. This form reports:

Box 1: Gross winnings
Box 2: Federal income tax withheld (if any)
Box 3: Type of wager
Box 4: Federal tax withheld
Box 5: Transaction date
Box 6: Race/game identification

One important note: if you have multiple qualifying wins on the same day for the same game type, DraftKings will aggregate them into a single W-2G form.

Form 1099-MISC: Miscellaneous Income

For daily fantasy sports, you'll receive a Form 1099-MISC which reports your net winnings in Box 3 (Other Income). This form is much simpler than the W-2G and typically doesn't involve any tax withholding.

Form 1099-K: Payment Card and Third Party Network Transactions

In some cases, you might receive a 1099-K from DraftKings. This form reports payment transactions rather than gambling winnings specifically. It's less common but still possible depending on your withdrawal patterns and the current reporting thresholds.

What If You Don't Receive Any Forms?

Here's the crucial point many bettors miss: not receiving a tax form doesn't mean your winnings aren't taxable. Even if your winnings fall below the reporting thresholds, you're still legally required to report all gambling income on your tax return.

The New DraftKings Winner's Surcharge Explained

Starting January 1, 2025, DraftKings implemented a controversial new feature that significantly impacts how does paying taxes work on DraftKings—the winner's surcharge. This is a game-changer that every bettor needs to understand.

What Is the Winner's Surcharge?

The DraftKings winner's surcharge is a 3.2% fee charged on net winnings in states where the tax rate exceeds 20%. This isn't technically a tax—it's a surcharge that DraftKings adds to help offset the high tax burden in certain states.

Which States Are Affected?

The surcharge currently applies in these high-tax states:

New York (51% tax rate)
Illinois (40% tax rate)
Pennsylvania (36% tax rate)
Vermont (13% tax rate, but above the 20% threshold for multiple operators)

How the Surcharge Works

Here's a practical example of how the surcharge affects your winnings:

Scenario: You win $1,000 on a bet in New York

Original winnings: $1,000
Winner's surcharge (3.2%): $32
Net amount credited to your account: $968

The surcharge is automatically deducted from your winnings before they're credited to your account. You'll see this itemized in your account history and on any relevant tax documents.

Why DraftKings Implemented This

DraftKings CEO Jason Robins explained that the surcharge is necessary to maintain competitive products in high-tax states. Without this surcharge, the company argued they couldn't invest adequately in customer experience and product development while paying the high tax rates these states impose.

Think of it like hotel taxes or ride-sharing surcharges—it's become a common practice across industries to pass along certain regulatory costs to consumers.

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State-by-State Tax Considerations

One of the most complex aspects of DraftKings taxes is navigating different state requirements. While federal tax obligations are consistent nationwide, state tax implications vary dramatically.

High-Tax States with Special Considerations

New York:

8.82% state withholding on gambling winnings of $5,000 or more
Subject to the 3.2% DraftKings surcharge
State income tax applies to all gambling winnings

Illinois:

Recently increased to 40% tax rate on operators
Subject to the DraftKings surcharge
4.95% flat state income tax rate

Pennsylvania:

36% tax rate on operators
Subject to the DraftKings surcharge
3.07% flat state income tax rate

No State Income Tax States

If you're lucky enough to live in one of these states, you only need to worry about federal taxes:

Texas
Florida
Nevada
Washington
Tennessee
New Hampshire (on gambling winnings)
Alaska
South Dakota
Wyoming

States with Moderate Tax Implications

Many states fall somewhere in the middle, with moderate state income tax rates and standard gambling tax treatment:

Colorado: 4.4% flat rate
Arizona: 2.5% to 4.5% depending on income
Michigan: 4.25% flat rate
Virginia: 2% to 5.75% depending on income

Important State-Specific Tips

Record keeping is crucial in all states, but especially important in high-tax states where you might face additional reporting requirements. Some states have their own gambling loss deduction rules that differ from federal requirements.

Withholding varies significantly between states. While some states automatically withhold taxes on large wins, others rely on you to pay estimated taxes or settle up at year-end.

Professional consultation recommended if you're a high-volume bettor in a high-tax state, as the complexity can be overwhelming.

How to Access Your DraftKings Tax Documents

Knowing where to find your tax documents is essential for proper DraftKings tax reporting. The platform makes these documents available through multiple channels, but you need to know where to look.

Accessing Documents Through the App

For DraftKings Fantasy App:

Tap your profile photo in the top right corner
Select "View Balance Details"
Toggle to the "Taxes" tab at the top
Download available tax documents

For DraftKings Sportsbook or Casino App:

Tap your profile photo in the top right corner
Select "Financial Center"
Under "Tax Center," tap "Download Tax Documents"
Select the tax year and download your forms

Web Browser Access

You can also access your tax documents through the DraftKings website:

Log into your account
Navigate to "Financial Center" or "Account Settings"
Look for "Tax Documents" or "Tax Center"
Select the appropriate tax year

Important Document Timeline

DraftKings follows IRS requirements for document delivery:

W-2G forms: Available by January 31st
1099-MISC forms: Available by January 31st
Annual win/loss statements: Available by February 28th

Two-Factor Authentication Required

Security note: DraftKings requires two-factor authentication to download tax documents. Make sure your account security settings are properly configured before tax season arrives.

What If You Can't Find Your Documents?

If you're having trouble locating your tax documents:

Check all DraftKings apps you've used (Fantasy, Sportsbook, Casino)
Verify your account information is current and matches your tax ID
Contact customer support if documents are missing or incorrect
Keep personal records as backup documentation

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Deducting Your Gambling Losses

One of the few silver linings in DraftKings tax obligations is the ability to deduct your gambling losses—but only if you do it correctly. This is where many bettors leave money on the table by not understanding the rules.

The Basic Rule

You can deduct gambling losses up to the amount of your gambling winnings if you itemize deductions on Schedule A (Form 1040). This is crucial—you can't deduct more losses than you have winnings, and you can't use gambling losses to offset other types of income.

How the Deduction Works

Example scenario:

Total gambling winnings for the year: $5,000
Total gambling losses for the year: $7,000
Maximum deductible loss: $5,000 (limited to winnings)

The $2,000 in excess losses cannot be deducted or carried forward to future years.

Record-Keeping Requirements

To claim gambling loss deductions, the IRS requires detailed records including:

For each gambling session:

Date and location of gambling activity
Names of other people present
Amount won or lost
Type of gambling activity

Supporting documentation:

Betting slips and tickets
Account statements from DraftKings
Win/loss statements
Credit card records showing deposits
Bank records showing withdrawals

DraftKings Win/Loss Statements

DraftKings provides annual win/loss statements that can serve as supporting documentation for your tax deductions. These statements typically include:

Total amounts wagered
Total winnings
Net win or loss for the year
Monthly breakdowns

Pro tip: Download and save these statements immediately when they become available, as they may not remain accessible indefinitely.

Itemizing vs. Standard Deduction

Remember that gambling loss deductions are only available if you itemize deductions. For 2024, the standard deduction is:

Single filers: $13,850
Married filing jointly: $27,700
Head of household: $20,800

If your total itemized deductions (including gambling losses) don't exceed the standard deduction, you're better off taking the standard deduction.

Practical Tax Tips for DraftKings Users

Successfully managing DraftKings taxes requires more than just understanding the rules—you need practical strategies to make tax season as smooth as possible.

Record-Keeping Best Practices

Set up a dedicated system from day one. Don't wait until tax season to start organizing your gambling records. Consider these approaches:

Digital tracking: Use a spreadsheet to log every bet, win, and loss. Include date, amount wagered, amount won/lost, and type of bet.

Screenshot everything: Take screenshots of big wins, account balances, and betting slips. These can serve as backup documentation.

Monthly reconciliation: At the end of each month, download your account statements and reconcile them with your personal records.

Tax Planning Strategies

Consider timing of withdrawals: If you're close to the end of the tax year and have significant losses, you might want to realize those losses before December 31st.

Understand net vs. gross reporting: Different activities on DraftKings may be reported differently (net for fantasy sports, gross for sports betting), so plan accordingly.

Estimate quarterly taxes: If you're a significant winner, you may need to make estimated quarterly tax payments to avoid underpayment penalties.

Working with Tax Professionals

When to seek help: Consider professional assistance if you:

Have winnings exceeding $10,000 annually
Live in a high-tax state with complex rules
Have both gambling winnings and business income
Are unsure about proper record-keeping

What to bring: When meeting with a tax professional, have ready:

All tax forms from DraftKings
Win/loss statements
Personal betting records
Bank statements showing deposits/withdrawals

Technology Solutions

Tax software: Most major tax software packages handle gambling income, but make sure yours supports:

Multiple gambling venues
Proper loss deduction calculations
State-specific gambling tax rules

Tracking apps: Several mobile apps are designed specifically for tracking gambling activity and can integrate with your tax preparation.

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Common Tax Mistakes to Avoid

Even with the best intentions, many DraftKings users make costly mistakes when handling their tax obligations. Learning from these common errors can save you money and headaches.

Mistake #1: Not Reporting Winnings Without Tax Forms

The error: Assuming that if you don't receive a W-2G or 1099, you don't need to report the income.

The reality: All gambling winnings are taxable regardless of whether you receive tax forms. The IRS can still discover unreported gambling income through other means.

How to avoid: Report all gambling winnings on your tax return, even small amounts. Keep detailed personal records as backup.

Mistake #2: Incorrectly Calculating Net Winnings

The error: Reporting gross winnings instead of net winnings, or misunderstanding how to calculate net results.

The reality: For most gambling activities, you report net winnings (total wins minus total losses), but the calculation can be complex.

How to avoid: Use official win/loss statements from DraftKings and understand the difference between session-based and annual calculations.

Mistake #3: Poor Loss Documentation

The error: Trying to deduct gambling losses without proper documentation or adequate records.

The reality: The IRS requires detailed records to substantiate gambling loss deductions. Vague estimates won't cut it.

How to avoid: Maintain contemporaneous records of all gambling activity, including losses. Don't try to reconstruct records from memory.

Mistake #4: Misunderstanding State Tax Requirements

The error: Focusing only on federal taxes and ignoring state-specific requirements.

The reality: State tax laws vary widely and can significantly impact your total tax burden.

How to avoid: Research your state's specific gambling tax requirements or consult with a local tax professional.

Mistake #5: Ignoring the Winner's Surcharge Impact

The error: Not accounting for the new DraftKings surcharge when calculating taxes owed.

The reality: The surcharge affects your net winnings and should be considered in your tax planning.

How to avoid: Understand how the surcharge works in your state and factor it into your overall gambling budget and tax strategy.

Mistake #6: Inadequate Estimated Tax Payments

The error: Not making quarterly estimated tax payments on significant gambling winnings.

The reality: Large gambling winnings can trigger underpayment penalties if you don't pay estimated taxes throughout the year.

How to avoid: If you have significant winnings, consult with a tax professional about estimated payment requirements.

Conclusion

Understanding how does paying taxes work on DraftKings doesn't have to be overwhelming. While the tax implications of sports betting and fantasy sports can seem complex, the key principles are straightforward: all winnings are taxable, proper record-keeping is essential, and staying informed about changes like the new winner's surcharge will help you avoid surprises.

The most important takeaway is that being proactive about your tax obligations will save you stress and money in the long run. Start keeping detailed records now, understand your state's specific requirements, and don't hesitate to seek professional help if your gambling activity becomes substantial.

Remember that tax laws and DraftKings policies continue to evolve. The winner's surcharge introduced in 2025 is just one example of how quickly things can change in this space. Stay informed, keep good records, and always report your winnings honestly—it's the smart play for your financial future.

Whether you're hitting small parlays or landing major scores, proper tax planning ensures you can enjoy your wins without worrying about compliance issues down the road. Play responsibly, report accurately, and may all your bets be winners!

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Frequently Asked Questions

Q: Do I have to report DraftKings winnings under $600? A: Yes, all gambling winnings are taxable regardless of amount. Even if you don't receive a tax form, you must report the income on your federal tax return.

Q: How does the new DraftKings winner's surcharge affect my taxes? A: The 3.2% surcharge in high-tax states is deducted from your winnings before they're credited to your account. This reduces your taxable income since you're taxed on the net amount you actually receive.

Q: Can I deduct my DraftKings losses if I don't itemize deductions? A: No, gambling loss deductions are only available if you itemize deductions on Schedule A. If you take the standard deduction, you cannot deduct gambling losses.

Q: What happens if I win money on DraftKings but live in a different state than where I placed the bet? A: You typically pay taxes based on your state of residence, not where you placed the bet. However, some states have specific rules about gambling income earned within their borders, so consult a tax professional for complex situations.

Q: How long should I keep my DraftKings betting records? A: The IRS recommends keeping tax records for at least three years after filing your return. For gambling records supporting loss deductions, consider keeping them for at least seven years.

Q: Does DraftKings automatically withhold taxes from my winnings? A: DraftKings may withhold federal taxes on certain large winnings (typically those meeting W-2G thresholds), but most routine winnings don't have automatic withholding. You're responsible for paying taxes on unreported winnings.

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