How Are Play-To-Earn Crypto Games Taxed?

How Do Crypto Games Work?

Traditional games have sold in-game items for years, from World of Warcraft gear to Fortnite skins. The money goes to the developer, and the items generally can't be cashed out.

Play-to-earn (P2E) games work differently. Players can earn crypto tokens and NFTs for playing, then move them to a crypto wallet, sell them on an exchange, or trade them with other players. Axie Infinity is the best-known example. Our article on play-to-earn crypto games covers more, including move-to-earn apps such as STEPN.

Because those rewards can be turned into money, the IRS expects to tax them.

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Which P2E Activities Are Taxable?

What Taxes Do You Pay On Crypto Game Earnings?

Game earnings can be taxed twice: once as income when you receive them, and again as a capital gain or loss when you get rid of them.

Rewards Are Income

The IRS taxes crypto you receive for doing something as ordinary income. It applied that rule to staking rewards in Rev. Rul. 2023-14 and to airdropped tokens in Rev. Rul. 2019-24. Game rewards follow the same logic: you report the reward's dollar value on the day you gain control of it, meaning when you can transfer, sell or trade it.

That income is taxed at your regular rate, from 10% to 37% federally in 2026. It goes on Schedule 1 as other income, or on Schedule C if your gaming is a business.

Later Sales Are Capital Gains Or Losses

The value you reported as income becomes your cost basis. When you sell, swap or spend the reward, you compare what you get with that basis.

In the NFT example, you report $60 of income in the year you earned it and a $230 capital gain in the year you sell. Hold the reward for more than a year before selling, and the gain is long-term, taxed at 0%, 15% or 20%. Our crypto tax rates article has the brackets.

If the token falls before you sell, you have a capital loss, but the income you reported doesn't go away. Axie Infinity's AXS token, for example, fell more than 90% from its November 2021 peak by 2023, which left players who held their rewards owing income tax on values far above what they could later sell for. Our article on reporting crypto losses explains how to use those losses.

Trading Assets Inside The Game

Spending earned tokens on an in-game NFT counts as selling the tokens. If they rose in value since you earned them, you owe tax on the gain. The NFT's basis is what you paid for it in dollars. If you later sell or trade the NFT for more than that, it's another gain. Some game NFTs may count as collectibles under the IRS's NFT guidance, though game items generally aren't.

Is Playing For Crypto A Hobby Or A Business?

The answer changes what you can deduct.

• Hobby: you play mainly for fun and earn now and then. Rewards are still taxable income, but you can't deduct costs such as starter NFTs or gas fees against that income.
• Business: you play regularly to make a profit, track results and treat it like work. You report on Schedule C, deduct ordinary business costs, and owe 15.3% self-employment tax on net earnings above $400.

Guild and "scholarship" setups, where an NFT owner lends game assets to a player and takes a share of the rewards, create income for both sides. The owner reports their share as income, and the player reports theirs.

Why Crypto Game Taxes Are Hard To Figure Out

No Game-Specific IRS Guidance

The IRS has addressed staking, airdrops, NFTs and crypto paid for services, but not play-to-earn games directly. Its digital asset FAQ, last updated in June 2026, doesn't mention games. Its original guidance, Notice 2014-21, covers only "convertible virtual currency," meaning currency that can be exchanged for real money. The IRS hasn't said how it treats points that stay inside a game, like World of Warcraft gold. P2E tokens can be withdrawn and sold, which puts them under the crypto rules.

Records Are Scarce

Most games don't produce tax statements, and rewards can arrive daily in small amounts. Exchanges that act as brokers now send Form 1099-DA for sales, but nothing reports the income you earned inside a game. You need your own log of each reward's date and value.

Crypto tax software can import your wallet and value each reward. Options include CoinLedger, CoinTracker, Koinly and ZenLedger. Check the values for thinly traded game tokens by hand, because software sometimes has no price for them.

P2E Taxes Outside The US

• United Kingdom: HMRC taxes cryptoassets received for activities as income, then charges capital gains tax when you dispose of them, per its guidance on tax when you receive cryptoassets.
• Canada: the Canada Revenue Agency treats crypto earned through regular activity as income, and later sales as capital or business gains.
• Australia: the ATO taxes crypto received as rewards as ordinary income at its market value when received.

What To Watch Out For

• Falling token prices: you owe income tax on a reward's value when you got it, even if it later becomes nearly worthless.
• Selling to pay the tax: selling appreciated rewards to pay last year's tax bill can create a new taxable gain.
• Game shutdowns: a P2E game can close or lose most of its players, and a token with no market can't easily be sold to lock in a loss.
• Missing records: without dates and values for each reward, you can't prove your income or your basis.
• Scams: fake P2E games and phishing sites target players. Our article on common crypto and NFT scams lists warning signs.

Bottom Line

Treat every withdrawable reward as income on the day you get it, and record its value. That one habit gives you both your income figure and your cost basis for later sales.

Include game earnings in your tax planning. Setting aside part of each reward for taxes keeps you from having to sell appreciated tokens later to cover the bill.

FAQ

Are Play-To-Earn Rewards Taxable?

Yes. Tokens and NFTs you earn in a play-to-earn game are ordinary income at their fair market value when you gain control of them. You report them even if you don't sell.

Do I Pay Tax Again When I Sell Game Tokens?

You pay capital gains tax on any increase in value after you received them. The value you reported as income is your cost basis, so you aren't taxed twice on the same dollars.

Is In-Game Currency Taxable?

The IRS hasn't issued guidance on points or gold that can't leave a game, and its crypto rules cover only currency that can be exchanged for real money. Tokens you can withdraw to a wallet or sell on an exchange are taxable when received.

Can I Deduct NFTs I Bought To Play A Game?

Only if your gaming is a business, reported on Schedule C. Hobby expenses aren't deductible, though an NFT's cost still counts as basis when you sell it.

Do Crypto Games Send Tax Forms?

Most don't. Exchanges send Form 1099-DA when you sell through them, but you track the income you earned in the game yourself.