Do You Pay Taxes on Skill Game Winnings? 2026 Player's Guide

The answer is yes. Skill game winnings are taxable income in the United States. The IRS classifies prizes from skill competitions as "other income" and requires you to report them on Schedule 1, Line 8i of Form 1040, regardless of the amount. Whether you won $50 or $5,000 competing against real human opponents, the obligation to report is the same. Here is exactly what you need to know for your 2026 return.

Are Skill Game Winnings Taxable in the United States?

Yes, they are. The IRS treats prize money from skill competitions as ordinary income, the same rate applied to wages and freelance work. According to IRS Topic 419, prizes and awards that aren't excluded by law must be included in gross income. This applies to Atay Games, Skillz-powered platforms, and any other service that pays out real cash prizes to tournament winners.

Atay Games matches players against real human opponents only. No bots compete in any match. That human-vs-human structure is exactly what makes winnings a prize from a skill competition rather than a machine payout, and the IRS treats them accordingly: as ordinary income that flows into your total taxable income for the year.

The good news is that reporting is straightforward once you understand the path. Your net winnings land on Schedule 1, travel to Form 1040 as part of your total income, and get taxed at your marginal rate. There is no special flat withholding for skill games the way there is for large lottery jackpots.

The IRS requires taxpayers to include all prize and award income in gross income unless specifically excluded by law. For skill-based gaming competitions, this means reporting net prize winnings as "other income" on Schedule 1, Line 8i of Form 1040. (IRS Topic 419, Gambling Income and Losses)

What Tax Forms Will You Receive for Skill Game Winnings?

Platforms issue a 1099-MISC (Box 3, other income) once your prize payments for the calendar year reach the federal reporting floor. That floor was $600 for payments made through 2025. For payments made from January 1, 2026 it is $2,000, indexed for inflation from 2027, under the One Big Beautiful Bill Act (26 U.S.C. 6041). Skillz's user terms still reference $600, so you may receive a form below the federal floor. You should receive it by January 31 of the following year, which is February 1, 2027 for 2026 payments. For which form covers what, including the PayPal 1099-K, read our 1099-K vs 1099-NEC in 2026 explainer.

Understand what the reporting threshold does and doesn't mean. It tells the platform when it must report your winnings to the IRS. It does not set the floor for when you must report. You owe tax on $50 of skill game winnings the same as you do on $5,000. The obligation exists regardless of whether a form arrives in your inbox.

In our review of player support questions at Atay Games, the most common tax misconception is that "no 1099 means no taxes owed." This is incorrect. The form is a reporting tool for the platform, not a bill of permission for the player.

Payment processors like PayPal, one of the rails Atay Games uses to distribute winnings, issue a 1099-K only for goods-and-services payments that exceed $20,000 and 200 transactions in a year, the threshold restored by the One Big Beautiful Bill Act in 2025 (IRS 1099-K guidance). A few states set lower bars, including Vermont at $2,000 and Maryland, Massachusetts and Virginia at $600. If a PayPal 1099-K and a platform 1099-MISC ever cover the same payout, report the income once; our 1099 explainer walks through the IRS zero-out method.

How Do You Report Taxes on Skill Game Winnings?

Reporting is a three-step process. Skill game prizes go on Schedule 1, Line 8i ("Other Income: Other") attached to Form 1040. The total from Schedule 1 flows to Line 8 of Form 1040 and adds to your gross income. From there, your marginal tax bracket determines how much tax you owe, exactly as it would for freelance income or a side job.

Here is the basic path, step by step:

• Add up your total net prize winnings for the calendar year across all platforms.
• Enter the total on Schedule 1, Line 8i and write "Skill game prize winnings" in the description field.
• Carry the Schedule 1 total to Form 1040, Line 8.
• If your winnings were substantial, consider paying estimated quarterly taxes to avoid an underpayment penalty (IRS Estimated Taxes guidance).

Keep all 1099 forms you receive from platforms and payment processors. If a form has an error, contact the issuer before filing. Do not simply ignore it: the IRS receives a copy of every 1099 and will match it against your return.

Prize income from skill competitions is reported on Schedule 1, Line 8i as "Other Income" and carries forward to Form 1040 as part of total gross income, where it is taxed at the filer's applicable marginal rate. There is no flat withholding rate specific to skill game prizes. (IRS Schedule 1 Instructions, 2025)

Are Skill Game Winnings Treated Like Gambling Income?

Not exactly, and the distinction matters for your deductions. Under IRS Topic 419, gambling losses are deductible up to the amount of gambling winnings, but only if you itemize deductions. That specific treatment applies to games of chance. Skill games occupy a different category because outcomes depend primarily on player ability rather than random chance.

In practice, this creates an asymmetry you should be aware of. Your skill game winnings are taxed as ordinary income. But your entry fees paid as losses do not get the automatic "losses offset winnings" treatment that applies to casino gambling. Depending on how often you play, entry fees might be deductible as hobby expenses under IRC Section 183, or as business expenses if you play professionally. Both scenarios come with conditions and limitations.

The legal distinction between skill games and games of chance varies by state, but the federal tax treatment does not track neatly with state-level skill-game laws. A state can legally classify a game as skill-based for licensing purposes while the IRS still treats income from it as ordinary income rather than gambling winnings. These are parallel frameworks, not the same framework.

The safest path is to consult a CPA or tax attorney who understands both hobby income rules and skill-game regulations in your state. The rules are not impossible to navigate, but they interact in ways that are easy to misread without professional guidance.

Can You Deduct Skill Game Entry Fees?

This is one of the most common questions players ask, and the honest answer is: it depends on facts specific to your situation. Entry fees are not automatically deductible the way gambling losses are under IRS Topic 419. But they may qualify under other deduction categories depending on how the IRS classifies your activity.

• Hobby activity (IRC Section 183): If you play occasionally for fun, your activity may be treated as a hobby. Hobby expenses were suspended as deductions under the Tax Cuts and Jobs Act through 2025. Check current law with a tax professional for the 2026 filing year.
• Business/self-employment: If you play regularly, with intent to profit, and can demonstrate a business-like approach (records, strategy, consistency), the IRS might classify your activity as self-employment income. Entry fees would then be deductible as business expenses on Schedule C, but you'd also owe self-employment tax on net earnings.

We've found through player inquiries that most recreational players fall into the hobby category. The distinguishing factor the IRS looks for is profit motive: are you playing to earn, or playing because you enjoy it? Documenting your approach, tracking results, and setting income goals all support a profit-motive argument if you later need to make it.

How Should You Track Skill Game Winnings for Taxes?

Good records take about five minutes per session and prevent hours of stress at tax time. The IRS expects you to keep documentation that supports what you report. A simple spreadsheet with six columns handles everything most players need: date, platform, game title, entry fee paid, prize won, and net result (prize minus entry fee).

Here is a practical month-by-month routine that works well:

• During the month: Log each session in your spreadsheet before you close the app. It takes 30 seconds while the numbers are still on screen.
• End of month: Screenshot your full withdrawal and deposit history from the app. Save to a labeled folder by month and year.
• January: Compare your spreadsheet totals against any 1099 forms you receive. Flag any discrepancy and contact the platform before filing.
• Before filing: Give your records to your tax preparer, or use them to fill Schedule 1 yourself. The total net winnings is your starting number.

Atay Games pays out winnings through PayPal and other payment methods. That means your PayPal transaction history also serves as a secondary record. Export it annually and keep it alongside your platform records. Two independent data sources make any discrepancy easy to resolve.

The IRS recommends that taxpayers with prize income keep an accurate diary or similar record with the date, type of activity, and amounts won and lost. While this guidance specifically references gambling, the same documentation standard applies to skill game prize income reported as "other income" on Schedule 1. (IRS Topic 419, Gambling Income and Losses)

Do State Taxes Apply to Skill Game Winnings?

Yes, in most states that permit cash skill gaming. State income taxes generally follow the federal treatment: prize income is ordinary income, taxed at your state's applicable rate. According to the Tax Foundation's 2025 state tax data, 41 states plus Washington D.C. levy a broad individual income tax, meaning most skill game players face both federal and state obligations on their winnings.

A handful of states have no individual income tax at all, including Florida, Texas, and Nevada. Players in those states owe federal tax on skill game winnings but no state income tax on top of it. Tennessee and New Hampshire historically taxed only investment income, not earned or prize income, though specific treatment should be confirmed with a local tax professional for the current year.

Some states also have their own 1099 reporting requirements or may treat skill game prize income differently from federal rules. If you are in a state that restricts or regulates cash skill gaming, there may also be legal nuances around the deductibility or character of your income. A state-licensed CPA is the right resource here.

Frequently Asked Questions About Taxes on Skill Game Winnings

Tax disclaimer. This article is for informational purposes only and does not constitute legal or tax advice. Tax laws change frequently and their application depends on your individual facts and circumstances. Always consult a qualified tax professional for advice specific to your situation. Nothing in this post should be relied upon as a substitute for professional guidance.