The esports industry has experienced phenomenal growth in viewership and revenue in recent years - the audience has grown to over 380 million. Top esports players earn millions of dollars annually. Since esports is a relatively new field, you, as a professional or an aspiring esports player, may have questions about how to handle entertainment industry tax planning, accounting, and bookkeeping.
How Are Esport Players Income Taxed?
Like all professional athletes, esports players who are US residents have to pay federal income tax to the IRS on their income, regardless of where they earn the income. Some esports players, like Jay Won, are surprised by this aspect of esports taxation. After winning the Overwatch League’s Grand Finals in 2019, Jay Won tweeted about getting taxed 55 percent on his final earnings.
If they don’t keep up-to-date with their professional athlete bookkeeping, esports players might overlook their state tax liability. The Jock Tax applies to esports the same way it does to other professional athletes. Besides paying income tax on their state of residence, they may need to pay taxes on income earned in nonresident states. An experienced esports CPA can work with esports players and guide them through taxable business decisions, like deciding the best state to have as their primary residence for tax purposes.
Tax Obligations on Tournament Winnings
An esports player’s tax obligations for tournament winnings will vary based on the location where the tournament was held and the prize being given. According to the IRS, any individual who earns more than $600 should receive a 1099–MISC that outlines the gamer’s esports winnings.
It may be good for even nonresident esports players to talk to an entertainment industry CPA familiar with US tax law if they are playing in the United States because when tournaments are held in the United States, even those who are not US residents may have to pay United States federal income tax on their winnings.
An entertainment industry accountant would also explain to their US-based clients if the foreign income exclusion applies to the money they earned and were taxed for overseas. For example, major esports tournaments like Dreamhack and Legends of the Rift are held in Sweden and in Bucharest. The tax laws of these countries require that taxes are withheld before winnings are given to esports players. US-based esports players may be able to receive tax considerations on the money they have already been taxed on. Our accountants at Fusion CPA can help you see if the foreign income exclusion applies to your esports winnings.
Tax Obligations for Team Salaries
In addition to money won playing tournaments, many professional players may have exclusive contracts with esports professional teams, such as Fnatic or Cloud 9. Recently, gaming superstar Jay “sinatraa” Won signed a contract for $150,000 a year.
Whether a gamer is an employee or an independent contractor determines if the esport organization or the gamer is responsible for withholding federal and state taxes. If the gamer is considered an independent contractor, their independent industry bookkeeping should include receipts for travel, meals, gaming consoles, subscriptions to gaming magazines, computers, and other expenses necessary and ordinary in their line of work as these may serve as a write off against their taxes.
Financial Advice for Esports Professionals
Being an esports professional can be a personal and financially rewarding career. At Fusion CPA our financial advisers offer to help you navigate financial software, ensure that you are paying the correct amount of tax, and have up-to-date financial records.
We are entrepreneurs who understand the unique bookkeeping and tax planning challenges esports professionals encounter. We want to help you keep as much of your tournament winnings and team salaries in your pocket as possible. If you have questions about esports taxation or you need to improve your bookkeeping and routine accounting processes - we are here for you. Our goal is to be partners you can trust. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.