Yes, you pay taxes on DraftKings winnings even if you don’t withdraw them. Once a payout hits your DraftKings balance, the IRS treats it as income you’ve received, because you could move it to your bank whenever you want. Leaving the money on the platform doesn’t delay the tax bill, and it doesn’t shift the winnings into a future tax year.
Why Leaving Money in Your Account Doesn’t Delay the Tax
The rule at work is called constructive receipt. Under IRS regulations, income is taxable in the year it’s credited to your account, set apart for you, or otherwise made available for you to draw on at any time. The only exception is when your control over the funds faces substantial limitations or restrictions.1eCFR. 26 CFR 1.451-2 Constructive Receipt of Income A DraftKings balance doesn’t fit that exception. You can request a withdrawal on demand, so the money is yours for tax purposes the moment it posts.
Gambling winnings also aren’t a special category the tax code carves out for deferral. Federal law defines gross income as “all income from whatever source derived,”2Office of the Law Revision Counsel. 26 U.S. Code 61 – Gross Income Defined and sportsbook and daily fantasy winnings are ordinary income, taxed alongside your wages and other earnings.
The December Win Problem
Timing matters most at year-end. Win a $2,500 parlay on December 28 and the funds sit in your DraftKings balance that day. Those winnings belong on that year’s return, even if you don’t transfer the money to your bank until February. The tax year is fixed by when you could access the funds, not when you chose to.
What DraftKings Reports to the IRS
Not withdrawing doesn’t hide anything. DraftKings files tax forms with the IRS based on your winnings, and the IRS matches those forms against your return.
For sports betting, DraftKings issues a Form W-2G when a payout meets both of two conditions: the winnings are at least $2,000 (the inflation-adjusted threshold for 2026, up from the longstanding $600 floor), and the payout is at least 300 times the amount wagered.3Internal Revenue Service. Instructions for Forms W-2G and 5754 (Rev. January 2026) Most straight bets miss the 300-times requirement, but parlays and long-shot futures can clear it easily.
Daily fantasy contests use a different form. DraftKings reports DFS winnings on a Form 1099-MISC when your net profit for the calendar year reaches $600 or more, measured across all contests rather than per wager.
Even when no form is triggered, you’re still required to report every dollar of gambling winnings.4Internal Revenue Service. Topic No. 419, Gambling Income and Losses The reporting thresholds exist for the IRS’s benefit, not as the trigger for yours.
When Taxes Are Withheld at the Source
Reporting and withholding aren’t the same thing. DraftKings must withhold 24% of your net winnings (the payout minus your wager) when the net winnings exceed $5,000 and the payout is at least 300 times the wager.5Internal Revenue Service. Instructions for Forms W-2G and 5754 – Section: Withholding That 24% goes to the IRS as a credit toward your annual tax bill. If you haven’t given DraftKings a valid Social Security number, backup withholding applies at the same 24% rate on smaller reportable amounts.
Withholding happens on the payout regardless of whether you withdraw the remainder. The taxable event and the withholding trigger are tied to the win, not the transfer to your bank.
How to Report the Winnings
Gambling winnings go on Schedule 1 (Form 1040), Line 8b.6Internal Revenue Service. 2025 Schedule 1 (Form 1040) – Section: Part I Additional Income You report the full gross amount before subtracting any losses, and that total flows into your adjusted gross income.
Use the W-2G and 1099 forms DraftKings sends you for the numbers those cover. For winnings below the reporting thresholds, you’ll need your own records. DraftKings provides transaction histories and year-end account statements through your account settings, which you can use to reconstruct the full year.
Most states with an income tax also tax gambling winnings, with rules and withholding thresholds that vary. Check your state’s department of revenue for specifics.
Losses Don’t Fix the Problem by Themselves
A common assumption is that if you win $5,000 and later lose $5,000 without ever withdrawing, you owe nothing. That’s not how it works.
You can deduct gambling losses only if you itemize deductions on Schedule A. For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.7Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Unless your total itemized deductions exceed those amounts, claiming losses won’t help.
Even when you do itemize, two caps apply. You can only deduct 90% of your losses, and the deduction can never exceed your total winnings.8Office of the Law Revision Counsel. 26 U.S. Code 165 – Losses – Section: (d) Wagering Losses Report $10,000 in winnings with $10,000 in losses, and the deductible amount is $9,000, not $10,000. Losses can never create a net loss that offsets wages or other income.
Winnings Raise Your AGI, and That Has Side Effects
Because winnings hit Schedule 1 as gross income, they raise your AGI even if you also deduct losses on Schedule A. Report $20,000 in winnings and deduct $18,000 in losses, and your AGI still reflects the full $20,000. That matters because AGI drives more than your tax bracket.
For retirees on Medicare, winnings that push modified AGI above $109,000 (single) or $218,000 (joint) trigger income-related monthly adjustment amounts on Part B and Part D premiums. At the first tier that’s an extra $81.20 per month for Part B alone; at the top tier (above $500,000 single or $750,000 joint) the Part B surcharge reaches $487.00 monthly.9Centers for Medicare & Medicaid Services (CMS). 2026 Medicare Parts A and B Premiums and Deductibles IRMAA is based on your return from two years prior, so a big 2026 year affects your 2028 premiums.
Higher AGI can also reduce Affordable Care Act premium subsidies, push more of your Social Security benefits into taxable territory, and phase out education credits and the child tax credit. None of these care whether the money is still in your DraftKings wallet.
If You Skip Reporting
DraftKings sends copies of every W-2G and 1099 to the IRS. When the numbers on your return don’t match, the IRS notices, and penalties and interest follow. The failure-to-pay penalty runs 0.5% of the unpaid tax per month, capped at 25%.10Internal Revenue Service. Failure to Pay Penalty Interest also accrues on any unpaid balance at a rate the IRS adjusts quarterly (7% annually for the first quarter of 2026).11Internal Revenue Service. Quarterly Interest Rates For substantial understatements (the greater of 10% of the tax owed or $5,000), an additional accuracy-related penalty of 20% of the underpayment applies.12Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
The cleaner approach is to pull your DraftKings transaction report each quarter and treat the running balance of winnings the same way you’d treat any other taxable income: reportable when won, whether it sits in your wallet or your checking account.