Look, I’d love to tell you that you can Twitch stream your ass to a tax-free income, or win a tournament and keep the prize money without kicking some pennies to Uncle Sam, but that’s just not the case. Good ol’ Benny used to say that there are only two constants in life: Death and taxes. Turns out that the world really hasn’t changed since Franklin’s era, and those words are just as true for the digital era we’re currently in.
To make things worse, most of us started our esports ventures as a hobby or side gig, so things can get quite complicated if you have a part or full-time job. However, one thing is sure: once the green notes start rolling into your bank account, the government will come knocking and ask for their share of the pie, regardless of the country you’re in.
How big of a piece, you ask? Well, that’s what we’re going to discuss today, but before we do that I would like to explain you the terms that you would need to know to navigate the tax waters efficiently.
Defining the Terms You’ll Need to Know
Sometimes it might seem that the people within the world of numbers and percentages speak a completely different language, but the truth is far from that. If you look at it closely, you’ll see that there’s just a handful of terms that you, as a law abiding, tax paying citizen need to know by heart, everything else is then self-explanatory soon after that. So, let me break up the most important ones:
- Earnings. This number represents the money that has been earned from employment contracts, both part-time and full-time ones. These are typically handled by your employer, so not much to worry about here.
- Revenue. This is the total amount of money that you’ve earned from your business activities, including freelance, streaming, console scalping, selling used bath water “for games” and so on. This is the taxable part of the story.
- Expenses. These represent the money that you’ve spent to keep your business alive, from the latest tech for your office up to various internet and electricity bills.
- Dividends. If you own a business entity, this is the fun part of the story – the money you pay yourself, as the owner of the business entity, at the end of the year.
- Income. This is the total amount of money you’ve earned in one fiscal year, including both your employment contracts, business entity and so on.
- Taxes. These represent the amount you now owe to your country of residence. How much exactly, and where to pay it, changes from one country to another. It’s just important to distinguish two things. The money you earn gets split two ways;
- Tax Residence is the country to whom you’re obligated to pay taxes. This part can get extremely complicated once you start talking about offshore accounts, tax havens, or shell corporations, but for the most part, your tax residence is in the country where you currently live.
- Personal Allowance or Tax Threshold is the amount that each country has set as a “grace amount” on which you don’t have to pay taxes.
- Double Taxation. This is important for those attending tournaments and competitions in other countries, if you’re from the EU, and win in a US-organized tournament, by default you’ll get taxed by both countries, and you would need to work it out with your accountant for it to *not* happen.
Now, of course, taxes are like Transformers, there’s always more than meets the eye. For example, US taxpayers are obligated to file federal and state taxes (in most states), and the information in this article only covers taxes at the federal level. Then there is EBITDA, Profit before and after taxes and so on, but I don’t want to over complicate things.
So, if you understand the above terms and the basics around it, it will be much easier to sit down with a proper accountant or a financial advisor, understand his language and make a plan for your esports career.
How Do I Know When I Need to Pay Esports Taxes?
This one is simple. If you’re making money from esports, it counts as income, you will need to declare it on your taxes. The tricky part is knowing if you need to pay taxes on it. The reason it’s like that is because it varies greatly from country to country and person to person based. So, not only the country of tax residence, but also the baseline amount and things such as marriage, disability, or age can all potentially affect an individual’s tax burden – but those are topics to be discussed with your tax/financial advisor.
What’s important to remember though, is the Personal Allowance or Tax Threshold that I’ve mentioned before. The table below shows how much each country allows residents to earn before being taxed. If your total income, that also includes your esports earnings, is below or within that amount, you’ll not pay any taxes on it:
Note that any money earned over this amount will be taxed at the full rate. For example, if you $15,000 in a year, you only pay taxes on the $1,050 that you earned beyond the minimum of $12,950.
It’s important that you’re aware that this is not an “esports income” specific amount, any business activity that bumps up your income will affect your tax bracket. So if your tax residency is in the USA, and you’ve earned $2,950 from selling roses, $5,000 from console scalping and $7,000 from Twitch streaming, then you’ve passed the total Tax Threshold since you’ve earned a total of $15.000 for this year, and you need to pay your dues on the amount outside of the $12,950 amount, which is everything earned above the $12,950 amount, which in this case is $2,000.
To complement the calculations, I’ve laid out six of the most common scenarios that esports players are likely to face, and I’ll outline the basics of what you need to consider. Now, each and every country is different, and if I were to cover all of them, we’d both be here all day. So, to keep things brief, I’ll just be covering the US, UK, Australia, Canada, and Malta.
I’m Under 18 and Make Money Through Esports, The F*** Do I Do?
You would be surprised how common this can be, while also probably being the one that’s most complicated, as multiple parties need to be involved.
If your tax residence is in the UK, the US, or Canada, then you’re still following the numbers I’ve mentioned above, that magical yearly personal allowance of £12,570 for the UK, $12,950 for the US, and $15,000 for Canada. If you, as a minor, pass that amount, then someone needs to file the taxes on your behalf. This is usually an agent (parent, guardian, or solicitor).
If your tax residence is in Australia, then the difficulty level goes up a notch. Minors in Australia may be subject to taxes of up to 66% unless they are an “excepted person” or earning an “excepted income.” Excepted persons are those who are under 18 and meet all of the following guidelines:
- Working full-time for a total of 3 months or more in the income year; AND
- In the following income year, you are BOTH
- intending to work full-time for most or all of it; AND
- not intending to study full-time
Likewise, excepted income covers both employment income and income from a self-run business. Therefore, most esports players and streamers in Australia will qualify as “excepted” under these regulations. This means that you will pay the normal individual tax rates based on your total income.
Malta is another tricky one. If you’re under 18 and earning money, someone will need to pay those taxes. Typically, parents are required to declare their dependent children’s income each year. This can be a little weird because even if you, as a minor, earn only €3,000, your parents or guardians will still need to declare it and add it to their Tax Threshold limit of Threshold of €9,100. There may be exceptions for students working part-time jobs while studying, but the job must be related to the field of study. So, if you’re studying esports and playing professionally, congratulations.
I’m Employed Full-Time and Earn a Side Income Through Esports
This is the easy part, and if you’ve understood all the info I gave you above, you should be able to form a good tax plan.
The UK makes it easy, any income you earn outside of your full-time job must be reported to the HMRC where it will be taxed at your normal rate based on your total income. Full stop. End of story.
Canada takes a similar route with things declaring that anything you earn, from any source, must be reported as income and will be taxed at your normal rate.
The US is a bit trickier, but still not too bad. Honestly, it’s possibly an even better situation depending on how much you earn.
Basically, this is your equation:
- You have non-taxable earnings from your employer, this is the part that you get from your company, where they took care of all the taxes through your full-time employment contract.
- You have your esports earnings that, let us say, amounted to $15,000 for the fiscal year.
- You have a personal allowance that depends on your tax residence country, let’s say that you’re in the US, and your personal allowance is $12,950.
So, you take the $15,000 that you’ve earned from esports, you remove the $12,950 threshold, and you end up with $2,050 that is taxable. EZ I say.
Drawing the line between a Hobbyist and a Professional
If you’re making $15,000 a year playing esports, it’s pretty hard to argue that you’re not a professional. But what about the little guys? What if you’ve only got 100 subs, and you only stream a few times a month? What if you only earned $800 on it all year? Well, you might just be classified as a “hobbyist” for tax purposes.
What does that mean? Less taxes my friend.
If you earn less than $600 in a year, you don’t owe anything at all, and if you earn more, then whatever platform you’re getting money from (Twitch, YouTube) will send you a Form 1040 to include with your taxes.
How do you know if you’re a hobbyist?
The IRS will look at several things, including (but not being limited to):
- Managing the channel in a business-like manner and keeping track of your records.
- Investing time and energy in an attempt to make it profitable.
- Depending on the income to pay bills.
- Changing the way you stream to become more profitable.
If you’re doing these things, you’re probably a “professional”, at least for tax purposes.
Australia draws a similar line between “hobbyist” and “professional,” and you may not need to pay taxes at all if your streaming is deemed to be a “hobby.” To determine if you are a hobbyist or an aspiring professional (who will be taxed), ask yourself these four questions:
- Do you have a logo or branding?
- Is full-time streaming your end goal?
- Do you stream on a regular schedule?
- Do you promote yourself on social media?
If the answer to these is “yes,” then you’ll likely need to report any income on your yearly taxes.
For Malta, things are, again, a little complicated. If you are a full-time employee who is earning income on the side from streaming, you are likely regarded as “part-time self-employed,” and the income you earn here is taxed at a flat rate of 10% on the first €10,000 that you earn. Anything past that is taxed at the normal rate. So, if you earned €15,000 in a year streaming, you’d pay a flat €1,000 for the first 10k, then whatever your normal rate is based on the total income for the last €5,000.
Whew. And that’s the easy stuff.
I’m Not Employed and Depend Solely on my Esports Earnings
Once again, if you’re not passing the Tax Threshold, then you don’t need to pay anything. But if you are making more than that, you’ll need to start forking over some cash.
Let’s go over the countries as an example again:
- In the UK, anything you earn, regardless of the source, is going to be taxed. The rate you’ll pay is based on a combination of all sources and is not calculated per job.
- Canada and Malta also make it simple, with taxable income from self-employment being taxed at a starting rate of 15% at the lowest tax bracket.
- In the US, if you’re a “career streamer,” you are responsible for both self-employment tax (15.3%) and income tax (based on total year-end earnings). This is due to the fact that the IRS views the money being paid to a streamer as coming from another business (YouTube, Twitch) and is taxed as income. The business paying the streamer is required to withhold all applicable taxes (an additional 15.3%) and send the rest to the streamer who then declares it as income. Yeah, it adds up fast.
- In the down under, Australia, if you’re actively using streaming to earn an income, then you will be taxed at the normal income rate. This includes any donations, tips, or gifts from viewers. However, you can deduct anything and everything that is used in your job from your final year-end income. Deductions include more than just your keyboard and microphone; if you’re streaming from home, then everything from furniture to electricity could potentially be deductible.
If you’re handling your own taxes, it’s really worth consulting with a professional. Also, it’s generally a good idea to register some form of business entity such as an LLC in the US or a LTD in the UK as this will usually result in a lower tax rate.
It might be easy to think that you don’t need to pay taxes if you’re just getting some money from Twitch donations or PayPal. You do. We don’t recommend working under the radar, it never pays off. Don’t forget that they brought down Al Capone—the most notorious gangster who ever lived—over unpaid taxes. They’ll come for you, too.
I’m Employed Full-Time by an Esports Team
This is easily the most straightforward situation, as there is no difference between being employed by an esports team and any other form of contracted employment. It’s just important that you double-check your contract and that you’re sure that you’re working under full-time employment terms, and not as a contractor. Some esports teams hire their players on a contract level, meaning that the player needs to manage their own tax affairs.
In the UK, Canada, and Malta, being employed or contracted as an esports player is no different than any other form of employment. However, Malta imposes a special tax of 7.5% on income earned by professional athletes and coaches. Whether or not esports players are defined as “athletes” here, though, is still unclear.
Tax residents of the US may find themselves being charged a so-called “jock tax“, which is a combination of state and local income taxes imposed when earning income away from your home city or state. The jock tax allocates earnings based on the number of games or days worked in each jurisdiction, with tax rates varying between states and cities. This can be incredibly complicated, and most players opt for a professional tax advisor to assist.
As for Australia, the tax burden placed on an individual member of an esports team or organization will depend on whether they are regarded as an “employee” or a “contractor.” If you’re an employee, then your employer will need to withhold PAYG obligations as well as an additional 9.5% to your Super Fund. This will reduce the hassle on your part as much of the taxes will be handled by your team.
On the other hand, for those whose contracts list them as “contractors,” things get a bit more complicated. First, you’ll need an ABN to register yourself as a business. In this case, your team or organization will pay you 100% of your earnings, and you will be required to file your own taxes.
So, again, make sure that when the esports team says, “we would like to employ you full-time,” that actually means a full-time employment contract in which they sort out the taxes. Otherwise, you’ll be the one responsible for filing them.
Esports Tournament Prize Money Taxation
Prize money is a different pair of shoes, and it’s taxed differently. In most locations, money earned as prizes is regulated differently than money earned as income. Additionally, with many tournaments being international events, what taxes are owed becomes doubly complicated.
Any tournament physically held in the US is liable for US taxes of 30%. However, non-residents are not required to pay this tax. Therefore, if, for example, EPIC were to host a Fortnite tournament in the US, they would hold 30% of any prize money paid out. If you are not a US taxpayer, you can petition the IRS for a return of that money. If you are a US taxpayer, tough luck.
Similarly, Malta treats cash prizes as earned income and requires that it be reported.
The important parts that you need to know are:
- If you’ve won as a team/organization, then you will need to communicate with the team that is responsible for handling these taxes. It may be that the organization takes the full winnings, pays all taxes, and then gives out a smaller amount, or you may receive your cut in full and have to file it on your own.
- If you’ve won as an individual, then you’re going to be on the hook for filing and paying everything on your own.
- Be careful about Double Taxation. If you’re competing internationally, the risk of “double taxation” becomes something worth considering. As mentioned, a tournament held in the US will withhold 30% of any prizes, but getting that money back will now mean it must be taxed in the UK. Whether or not this is worth it varies on a case-by-case basis.
- Earning a high enough amount could bump up your tax bracket. In countries that tax tournament winnings, a large enough prize could bump you into a higher tax bracket and could increase the money you owe.
In terms of country-specific laws, definitely look up the details of your country of tax residence, because some of them have better terms than others. As an example, prizes are not considered taxable income in Australia unless they are carried out as part of an individual’s normal profession. This means that an amateur who is otherwise employed entering and winning a tournament for a cash prize is untaxed, but a professional gamer entering a tournament would have the winnings taxed as income. Therefore, most professional gamers competing as part of a team or organization can expect to have any prizes taxed as normal income.
Likewise, in Canada, tournament prizes are only taxed if it was a “game of skill,” which esports have been determined to be. However, players are only required to pay taxes on prizes if participation in the event is a “business activity” and not a “hobby.” If you’re playing as a part of a team and earning real money, this is going to be taxed. But if it’s just a weekend CS:GO tournament at the College Rec Center, then you’ll be fine. Either way, all prizes must be reported as income, and it’s up to the tax man to decide what you owe.
Taxation on Esports Betting
Winnings from esports betting are labeled as gambling winnings, and as such, they are again falling under a completely different bracket, and also (again!) depend on your tax residence country. Additionally, esports betting is not legal in all jurisdictions, and explaining to the tax man why a random Curacao-based entity sent you a couple of thousand dollars overnight is a challenge you do not want to deal with… So I’ve been told.
- Residents of the UK, Canada, and Australia don’t need to pay anything at all, as these governments view this money as the result of good fortune and do not view gambling as a profession. These earnings do not need to be reported, and nothing is owed on them.
- Malta is also pretty simple. Gambling winnings are only taxed if the player is a professional gambler, though this term is not strictly defined.
- The US taxes all gambling winnings as income. In fact, there’s even a special form for documenting your gambling wings: Form W-2G. This money is counted towards your yearly income and will be taxed at whatever bracket you fall into at both the state and federal levels. You must keep track of the type of gambling, the amount of the gambling winnings, and the general ratio of the winnings to the wager, as these will all be needed for filing. Conversely, any gambling losses that occur on a real money online casino platform can be tax deductible in an amount up to your total yearly winnings. Losses and winnings must be filed separately and not as a net amount.
The Sooner You Take Hold of Your Taxes, The Better
Look, if you’re serious about your esports career, I would definitely recommend that you learn the rules of the country of your tax residency and play by them for the lifetime of your project.
Sure, there are some shortcuts here and there that might help you get an extra penny out of your venture, but before entertaining that idea be sure to consult a good tax advisor. They know how to dance around the line and make your venture tax efficient.
Additionally, anyone who is earning a considerable income from esports should think about setting up some form of a business entity, and ideally, again, consult their tax or business advisor on the best location and setup for it.