Esports is a reasonably new sport in the world. As such, not many countries have concrete taxation laws for professional players and tournament organizers. Unfortunately, that makes it difficult for gamers to know whether they should or how much they should pay in taxes and the question remains, “Are eSports profits taxed?”
Popular Overwatch player Jay Won learned about taxes the hard way after he won the Overwatch Grand Finals in Philadelphia last December.
“Getting taxed 55% of grand finals earnings, cool, cool 🙂 LET’S GO!!!” Won tweeted after learning how much he would be paying in taxes.
It’s a fate that befalls many eSports professionals. But it’s also something unheard of in some parts of the US and Canada. Against that backdrop, here’s the state of taxing eSports in North America.
Under $10,000 Per Year – Are eSports profits taxed
People who earn less than $10,000 in the US don’t pay taxes. Quite the contrary, they receive 7.1% in tax refunds from the US government. This applies to all industries, including eSports. As a result, you don’t need to pay taxes from your eSports profits if they amount to less than $10,000 annually.
In Canada, taxes vary by province. In Ontario, you can expect to pay $494 in taxation if you earn less than $10,000. On average, Canadians who make below $47,630 per year pay a tax of 15%.
Luckily, eSports players are entitled to deductions related to work expenses. That means you can include your training, practice and petty expenses to ensure you are correctly taxed.
Yes and No for Games of Chance – Are eSports profits taxed
Canada doesn’t charge casino players taxes on their profits. It doesn’t matter whether you win $100 million playing online slots or $10,000 from live casinos. If you reside in Canada and play gambling games online, you won’t be taxed.
Unfortunately, we can’t say the same in the US. Everyone playing casino games is expected to pay a flat 25% tax on their profits. That means whether you win $10 or $1 million, you can be confident the IRS will come after 25% of your winnings.
So, does that mean professional gamblers in the US should consider moving to Canada? Well, that’s a decision only you can make.
Gambling in the US has its benefits, especially the glam and glory of Las Vegas. You can also earn tax deductions as a professional gambler. But as mentioned, the tax rate is significant.
Taxes for the Self Employed – Are eSports profits taxed
For a long time, the US and Canadian governments considered gamers as independent contractors. In other words, they were treated as self-employed people. Some states in the US still require players to file their taxes independently.
And that means you need to tax files related to hospital insurance and your income. Precisely, self-employed people in the US pay 15.3% in annual taxes. What’s more, you can expect to pay taxes on tournament winnings in a state like Philadelphia.
Ideally, you want to involve an account or lawyer knowledgeable in tax issues to help you file taxes in both Canada and the states. That way, you don’t have to risk making mistakes and potentially getting into trouble with the law.
If you live in Florida and win a CS: GO competition in Ontario, you can expect to pay a tax in Canada. However, federal rules prevent your state from taxing you the same income twice. As such, you won’t be required to pay taxes when you get back home.
Although it’s challenging to know the tax rules of each state and province in North America, you don’t have to worry about not knowing when to pay. In many cases, authorities deduct non-resident tax before your money gets into your bank account.
That’s because it’s tournament organizers and team owners who hold the responsibility of withholding taxes. In some cases, though, teams provide players with accountants to help them file taxes individually.
Taxes on Streaming
In both Canada and the US, money earned from broadcasting is taxable. That means the law requires you to pay taxes on your Twitch and YouTube money. Usually, you file taxes as a contractor, which demands you shell out 15.3% to 30% of your income as taxes.
Of course, not all streamers declare their actual earnings. Some people report earnings made from Twitch subscriptions but leave out cash earned through adverts. Others fail to include donations even if they should.
Truth be told, the best approach is to work with an accountant and report your income accurately. A good accountant can help you write-off plenty of expenses, including:
- Software upgrades
- Sponsored advertisements you make
- Training expenses
- Networking events you attend
- Hardware you purchased
- Consultations you paid for
Days Worked State Taxes
Although not many states and provinces treat pro-gamers as athletes, they could soon be liable to pay taxes on each state they visit. That’s something hockey, baseball, basketball and football players deal with each year.
Some states tax more than others. In Pennsylvania, NBA, MLB and NHL players pay a tax for the ratio of games they played in the state. And that includes both the preseason. In Michigan, athletes pay a specific charge for income earned while working in the state.
To lower their taxes, many athletes choose a domicile state or province with the least amount of taxes. Of course, that means you must live in that state in the offseason and be a registered voter. But that ensures you keep your taxes low even if other states charge you for days worked there.
Tax Benefits for Pro-Gamers
Being a new industry, eSports players are yet to start benefiting to the kind of tax credits traditional athletes get. That may soon change, however, as states continue to find ways to tax the gaming community.
If things work out properly, pro-gamers could receive all sorts of tax credits for working in multiple states. Pennsylvania players, for example, don’t need to pay taxes for money earned in Maryland, Virginia, Indiana and West Virginia.
On the other end, New Jersey gives tax credits to athletes who work in Pennsylvania. Some states also give out credits to players who pay taxes to cities, and not states.
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