When you hit a jackpot or win a big tournament, the adrenaline is usually pumping way too hard for you to think about the taxman. But if you’ve just pocketed a few thousand from an esports event or a lucky scratch-off, that excitement can quickly turn into a headache when you realize the government might want a slice. Tax laws for gaming and gambling aren’t just complicated; they’re constantly shifting under our feet.
The Esports Puzzle: Hobby or Job?
Esports occupies a strange middle ground in the eyes of tax authorities. In the UK, for instance, whether your winnings are taxable often boils down to a single question: Are you a professional or a hobbyist?
Most casual gamers are safe. If you’re just playing for fun and happen to win a prize, the UK typically views this as non-taxable gambling income. However, the moment you start treating it like a business—securing sponsorships, training full-time, or winning consistently—the tax office might decide you’re “trading.” If that happens, your winnings are treated like regular income and taxed accordingly. It’s a blurry line, and to be honest, it often comes down to the “badges of trade” the authorities use to judge what you were actually trying to achieve.
Over in the United States, the IRS is a bit less flexible. They generally view prize money from competitions, including esports, as taxable income. Whether it’s a $500 local bracket or a million-dollar trophy, you’re expected to report it. Interestingly, a major shift hit the US recently. As of 2026, the reporting threshold for slot machines jumped to $2,000 under new tax updates, yet esports competitors are still stuck reporting every single cent they earn.
Lottery and Scratch Cards: Who Takes a Cut?
If you prefer the luck of the draw over the skill of a keyboard, the rules change again. The UK and Ireland are relatively generous here; they don’t tax lottery winnings or scratch card prizes. If you win £10 million on the National Lottery, you keep £10 million. Of course, any interest you earn on that money in a bank account will be taxed, but the initial windfall is yours.
Spain, however, has a different approach. They have a “special tax” on prizes. For the big state-run lotteries like the Christmas “El Gordo,” the first €40,000 is usually tax-free. Anything above that? The tax agency takes a flat 20% right off the top. It’s efficient, even if it stings a bit, because they usually deduct it before you even see the money.
The US remains one of the most aggressive tax environments. If you win a major lottery prize, the IRS doesn’t just ask for a share; they take 24% as an immediate withholding. Depending on your total income, you could eventually owe up to 37% in federal taxes, plus whatever your state wants. The silver lining is that you can still deduct your gambling losses to offset those wins—as long as you keep your receipts. You’re allowed to deduct losses up to 100% of your total winnings, which is a lifesaver if you had a rough run before hitting it big.
Can Expats Still Play Their Home Lottery?
This is a question that always pops up in expat forums. If you’ve moved from London to New York or Madrid to Dublin, can you still play the lottery back home? The answer is a messy “maybe,” and moving doesn’t mean the tax rules we discussed earlier disappear.
The Digital Loophole
In Ireland and Spain, the rules are slightly more relaxed for digital play, provided you still have a local bank account and valid ID. Unlike the UK, where residency is strictly monitored for online play, many expats manage to keep playing their “home” games digitally. However, this convenience comes with a massive caveat.
The Double Taxation Trap
Winning a “home” lottery while living abroad creates a tax nightmare because you now fall under the rules of both countries. For example, if you are a US citizen living in Spain:
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Spain will take its 20% cut at the source.
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The IRS will still want its share because the US taxes “worldwide income.” While you can often claim a “Foreign Tax Credit” to avoid paying twice on the same dollar, you usually end up paying the higher of the two rates.
2026 Update: The “Phantom Income” Risk
New for 2026, the US has capped gambling loss deductions at 90% of winnings. This means if you win $10,000 but lost $10,000 earlier that year, you are still taxed on $1,000 of “phantom income.”
The Residency Clause Always double-check the Terms of Service. Most providers have a “must be physically present” clause. If you win a major jackpot from a digital ticket while living abroad, the organizers might use that clause to void the winning ticket entirely, leaving you with nothing.
Keeping the Peace with the Taxman
Whether you’re a pro gamer or a casual lottery fan, the best advice is to keep a paper trail. The IRS and other agencies are getting much better at tracking digital payments. If you’re winning regularly, do yourself a favor and start a simple spreadsheet.
What do you think? Is it fair for the government to take a cut of a “lucky” win, or should gaming prizes be off-limits? Let us know your thoughts in the comments below, and don’t forget to follow us on Facebook and Instagram for more updates on the gaming world!
Speaking of the gaming world, there’s more than just tax updates to keep an eye on this year. If you’re looking to escape the spreadsheets and dive back into the action, you’ll definitely want to see why everyone is talking about the upcoming SPEAR release—it’s one Xbox platformer that is seriously turning heads right now.
Sources:
- www.brighttax.com/blog/taxes-on-lottery-winnings/
- www.blog.sprintax.com/do-nonresidents-pay-taxes-on-gambling-winnings-in-the-us/
- www.itsgnetwork.com/itsg/globalTaxJournal.asp?aid=34
- www.gov.uk/government/publications/changes-to-gambling-duties/gambling-duty-changes
- www.igamingbusiness.com/finance/uk-sector-hit-with-remote-gaming-duty-increase/
- www.taxesforexpats.com/articles/tax-reform-2025/major-gambling-tax-changes-in-the-one-big-beautiful-bill-act.html
- www.citizensinformation.ie/en/justice/civil-law/the-law-on-gambling-in-ireland/
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