Your Tax Guide to Professional Gaming

In 2024, professional gaming and streaming is a lucrative path for those with the skills and charisma to hold a crowd. The Esports scene has been gaining a lot of attention in recent years, growing at least 10% every year since 2020.

Twitch, one of the premiere streaming platforms, allows streamers to earn money in various ways, one of them being viewership. Those that can manage to average 100 viewers per stream, have the potential to earn around $1,000 to $1,500 per month. The few that can command 10,000 average viewers or more can earn north of $30,000 per month. Streamers who supplement their Twitch income with posts to YouTube can earn much more. There’s also tournaments and competitions that boast hefty purses.

Whether you’re a small streamer making a few hundred dollars per month or taking home part of the multi-million dollar prize pool at The International, understanding that the income earned will be taxed is extremely important. Especially in an industry that is dominated by those younger than thirty years old. Since there isn’t a formal age requirement, Syed “SumaiL” Hassan became a millionaire at just fifteen years old upon winning the Dota 2 competition back in 2015. Similarly, at sixteen years old, Kyle Giersdorf earned a life-changing sum of prize money when he won the $3 million grand prize at the Fortnite World Cup in 2019. This type of money is intriguing to a young generation that has been raised alongside video games and it is quickly creating very young, very wealthy gamers with few places to go for much needed career advice related to tax and financial planning.

Income earned from streaming or winning a tournament is not the same as earning a paycheck in a 9 to 5, because the gamer is not an employee of any company. Typical employers issue a W-2, showing a person’s total earnings and withholdings throughout the year. Streamers, however, are not standard employees of any entity and therefore don’t usually receive paychecks with any withholdings. Instead, the company issues a form called a 1099-NEC. NEC stands for “non-employee compensation,” because the streamer is not a registered employee of the company, and yet received some type of income in return for the value they provide to the streaming platform.

Those that receive 1099-NEC should report this income within Schedule C of their 1040 income tax return, unless that individual created a company specifically for their Esports activities. It’s also important to remember that, when recording income to Schedule C, expenses related to the activity should also be considered. Did you purchase a new gaming computer and webcam to start your streaming career? Report them as business assets and take depreciation expense the same way a business would. Did you travel overseas to compete in Dota 2? Record the expense on Schedule C the same way you would for any other business. If you are unsure if you can take an expense, please consult your tax advisor.

Although there are many gamers who pursue streaming and Esports as a means to make a profit, there are also those that still game as a hobby, and sometimes that hobby can lead to money. For people that fall into the latter, the IRS requires income earned to be reported on Schedule 1, line 8 of Form 1040. This is because the IRS recognizes hobbies and businesses in different ways. According to the IRS, individuals that operate a business do so with the intention of making a profit. A hobby is any activity that an individual pursues because they enjoy it, and with no intention of making a profit. So how can you tell whether or not you are operating a business, or engaging in a hobby? Do you keep books and records? Do you have enough income from the activity to continue to fund said activity? Do you depend on this activity for your livelihood? For some these answers are clear, but for others maybe not.

In many ways, professional athletes of traditional sports have already been navigating this practice for decades. Like gamers, professional golfers are self-employed and impose many of the same tax implications on the income they receive during their career. Jordan Spieth, for example, was only nineteen years old when he won the 2013 John Deere Classic, earning over $800,000 in prize money for his efforts. Like a competitive gamer, he accrued expenses for travel, accommodations, equipment, etc., all of which can create deductions on the amount of taxes he owed to the IRS on that income. When accounted for correctly, these deductions can lead to massive tax savings over the course of a career for a professional athlete, regardless of whether they prefer a four-iron or gaming controller as their instrument of choice.

Making money doing something you love is what we all aspire to achieve, and for some lucky gamers, it has become a reality. But understanding how income earned from gaming is reported and taxed is something that should not be overlooked. Withum understands the tax code and how it applies to gamers. Our passion lies in providing the highest quality support as a trusted advisor and we take pride in being a small part of a client’s successful career.

Author: Andrew Sosidka | [email protected]