Income Tax For Online Games and eSports Winnings

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The online gaming industry has flourished due to worldwide lockdowns. Online fantasy games are a source of distraction to most people and provide monetary and non-monetary benefits on winnings.

The entire eSports business was witnessing fast growth, even before the COVID-19 pandemic. Professional gamers are approaching and, in some cases, exceeding the levels of traditional sports stars. In the US, eSports has evolved into a fully independent sector in recent years, with a surge in investment and revenue predicted to exceed USD 1.5 billion by 2023.

Tax Issues with eSports

You are legally compelled to pay taxes whenever you earn money. You must pay taxes on the money you receive from full-time employment or as an independent contractor. A majority of professional eSports players are paid by a team or organization regularly, which is taxable. The amount of tax is determined by the fact that whether you are an employee or independent contractor, and taxes vary from state to state.

One particularly inconvenient form of taxation is jock tax. Authorities in individual states utilize it to charge non-resident eSport players for revenue earned there. Thus, even if someone lives in another nation and travels to the United States to compete in a contest, they will be required to pay Federal income tax on any winnings.

Tournament prize money accounts for a significant amount of a professional’s earnings. The taxation on these winnings is determined by the country or state where these tournaments are hosted. According to the INTERNAL REVENUE SERVICE (IRS), US inhabitants must file Form 1099-MISC for all income above USD 600. Therefore, even non-US citizens playing tournaments held in the US are required to pay Federal income taxes.

For many professional gamers, streaming on significant networks like Twitch or YouTube is a huge source of money. Unfortunately, this income is also taxable. Twitch, for example, forces both US and non-US residents to pay a 30 percent tax if their revenue exceeds USD 600.

If you make money by coaching other players, receiving royalties from sponsorship, selling items, or from any other means, you’ll have to pay taxes on all of this.

Online Games Liable to Taxation

Usually, online gaming is centered on a subscription basis. The majority of the games are free to download, and users are only charged if they opt to access premium content or in-app purchase items. While some games are played for the sole purpose of enjoyment, others offer their players monetary rewards.

In India, gaming companies are getting huge investments due to the evolution in their gaming industry. In the recipient’s hands, all revenue obtained as a result of playing online games is taxable. The amount of earnings must be determined by whether the competition requires skills or is a game of chance. Under section 115BB, any earnings from a game of chance are taxed at a reduced rate.

Lotto Result or crossword puzzles, horse races, card game winnings, 4D Lotto or any other similar game would be taxed at a fixed rate of 30 percent. In the case of victories from a game of skill, the income to be taxed is examined under the heading “income from other sources” and taxed at the standard tax rate in the hands of the assessee.

Handling eSports Taxes

If a player could not pay his tax, he or she may be subject to a tax probe, sometimes called an “audit.” Therefore, it is better to obtain a Certified Public Accountant or a lawyer specializing in eSports taxation. Many organizations already have accountants on staff to assist their players with tax issues.

Professional gamers should negotiate with their tax advisors or other specialists when finalizing the terms of their next gaming contract to discover the best forms of compensation they receive as the gamer’s net after income tax is an essential consideration.

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