Tax Debt & Surprise Income

Owe Taxes on DraftKings Winnings? What to Do in 2025

By Angeline Balsitis, EA · Reviewed by Melissa Ly, Chief Tax Officer · Updated September 15, 2025 · Editorial Standards

Why you owe taxes on your DraftKings winnings

The IRS treats every dollar you win from DraftKings, FanDuel, or any sportsbook as taxable income — the same as wages or freelance pay. This surprises a lot of people. You may owe taxes on DraftKings winnings even if you left the money in your account, reinvested it in new bets, or lost it all back later in the year.

Here's the part that catches casual bettors: the IRS counts your winning bets as income, not your net result for the year. So if you won $8,000 on some bets and lost $7,500 on others, the IRS still sees $8,000 of income — unless you can properly deduct the losses (more on that below). You can read the official rules on IRS Topic 419, Gambling Income and Losses.

The W-2G and 1099 — why the IRS already knows

When your payouts cross certain thresholds, DraftKings and FanDuel issue a Form W-2G (or sometimes a 1099) and send a copy straight to the IRS. That's how a forgotten win turns into a bill a year later.

But here's what trips people up: not getting a form does not make the money tax-free. The thresholds only decide when a form is issued — they don't decide what's taxable. All of it is. If a surprise tax form showed up in your mailbox, our guide on a 1099 you weren't expecting walks through exactly what to do next.

Can you deduct your losses?

Yes — but with strict limits that catch many people off guard:

• You can deduct gambling losses only if you itemize deductions instead of taking the standard deduction.
• You can deduct losses only up to the amount of your winnings — never more.
• Losses can't create a refund or cancel out your job income.

Most casual bettors take the standard deduction. If that's you, you generally can't deduct a single dollar of losses — which is exactly why so many people end up owing on betting income they thought they broke even on.

A real-world example of the bill

Say you're in the 22% federal tax bracket and you had $10,000 in winning bets during the year. Even if you lost $9,000 back, if you take the standard deduction the IRS taxes the full $10,000.

• Federal tax at 22%: about $2,200
• State income tax (varies — many states tax gambling winnings too)
• If you didn't report it and got a CP2000, add a possible 20% accuracy-related penalty plus interest

That's how a year where you "didn't really win anything" turns into a four-figure tax debt. The numbers are real, the rules are unforgiving — but the bill is fixable.

What happens if you ignore it

The IRS collection process is automated. If you don't respond, the notices escalate roughly every five weeks, each one carrying more enforcement power:

1. CP2000 — proposes extra tax from unreported winnings. Not a bill yet, but the clock to respond is running.
2. CP14 — your first official bill once the tax is assessed. Penalties and interest start adding up.
3. CP501 / CP503 — reminder notices. The balance keeps growing each month.
4. CP504 — Notice of Intent to Levy. The IRS can grab your state refund and a federal tax lien becomes possible.
5. LT11 / Letter 1058 — Final Notice. After 30 days the IRS can garnish wages and levy bank accounts. You still have appeal rights here — but far fewer good options than you have today.

Acting early is always cheaper. A bill you address now costs a fraction of one you let escalate.

If you got a CP2000 about gambling winnings

A CP2000 is the most common notice tied to betting income. It means the winnings DraftKings or FanDuel reported don't match your return. It is not an audit — it's an automated mismatch. You can agree and pay, or disagree with documentation, but you must respond by the date on the notice.

If the proposed amount looks too high — for example, it ignores losses you can legitimately deduct — you may be able to push back. Our guides on the CP2000 notice and how to disagree with a CP2000 show you how to respond the right way.

If you can't pay: your real options

The notice gives you two choices — pay or else. In reality the IRS has several programs, and the right one depends on your finances:

• Short-term payment plan — up to 180 extra days to pay in full, with no setup fee.
• Installment agreement — a monthly plan. For balances under about $50,000, a streamlined agreement can usually be set up without detailed financial disclosure, spread over up to 72 months. See how to set up an IRS payment plan online.
• Currently Not Collectible status — if paying anything would create real hardship, collection can be paused. The debt remains, but levies stop.
• Offer in Compromise — settling for less than the full balance. It's real, but only when your assets and income genuinely can't cover the debt. Anyone promising to settle for "pennies on the dollar" before reviewing your finances is selling you something.
• Penalty relief — if this is your first slip in years, first-time penalty abatement can remove the late-payment penalty entirely.

How to respond, step by step

1. Read the notice carefully and note the response deadline and the tax year involved.
2. Pull your records — log into your DraftKings or FanDuel account and download your annual win/loss statement. Compare it to any W-2G or 1099 you received.
3. Check the math. If the IRS figure ignores deductible losses or double-counts a form, you may owe less than proposed.
4. If it's correct and you can pay: pay by the deadline at IRS.gov/payments to stop penalties.
5. If you can't pay in full: pick a payment option above and set it up before the deadline. Even a plan you start today prevents everything that follows.
6. If the balance is large or you have other unfiled years: get a professional review first — the order you fix things in changes what you end up paying.

DraftKings & FanDuel tax questions, answered

This guide is general information, not tax or legal advice for your specific situation. Eligibility for IRS programs depends on individual facts and circumstances; no outcome is guaranteed.

Related: Got a 1099 you weren't expecting, the CP2000 notice explained, and what to do if you owe the IRS $10,000 — or browse all guides.