Do You Pay Tax on Prediction Market Winnings?

Last updated: June 2026

Yes, prediction market winnings are taxable in the US, even if the platform never sends you a tax form. Profits from Kalshi, Polymarket and similar platforms count as income you have to report. The wrinkle is how they are taxed, which is genuinely unsettled because the IRS has not issued specific guidance.

This guide is for US readers, with a short note on the UK and Australia near the end. It explains why you may not get a full tax form, the approaches people take, and why the safe move on anything sizable is to talk to a professional.

The short answer

Your profits are taxable. The IRS expects you to report all income, and money you make on prediction markets is income, full stop. Whether or not a form lands in your mailbox does not change that.

What is not settled is the category your winnings fall into, and that affects the rate you pay. The IRS has not published rules specific to event contracts, so even tax professionals disagree on the cleanest treatment. Here is what is actually known.

Why you might not get a tax form

Do not assume that no form means no tax. The platforms send fairly limited paperwork, and it does not cover your actual trading profit.

Kalshi, as an example, issues a 1099-INT for interest earned on your cash balance once it reaches a small threshold, and a 1099-MISC for things like referral bonuses or account credits above a higher one. It issues only a limited 1099-B tied to certain crypto transfers, not a full 1099-B covering your event-contract trades. So the gains that matter most, the money you make buying and selling contracts, often arrive with no neat summary form at all. That is normal, and it does not let you off the hook. The reporting duty is yours regardless of what arrives in the mail.

How the winnings are taxed

This is the unsettled part. Without specific IRS guidance, tax professionals point to three possible treatments, and they are not equal.

• Ordinary income. The most conservative and most common approach treats your net gains as ordinary income, like wages or freelance earnings. It is the simplest to defend if you are ever questioned.
• Section 1256 contracts. A more aggressive position argues that because these are CFTC-regulated contracts, they qualify for the 60/40 split that futures get, where 60 percent is taxed as long-term gain and 40 percent as short-term. This can lower the rate, but it is unsettled for binary event contracts and is not a safe default.
• Gambling income. Treating it as gambling is usually the worst option, especially after a 2026 change that limits how much of your losses you can deduct against winnings.

We are not telling you which to pick, because that genuinely depends on your situation and on advice the IRS has not yet given. The honest summary is that the conservative ordinary-income route is the easiest to defend, the Section 1256 route may save money but carries more risk, and a professional is worth their fee here.

Keep your own records

Because the forms are thin, your own records are the thing that saves you. The platform may not hand you a clean profit-and-loss summary, so build one yourself as you go.

Keep a log of your deposits and withdrawals, your trades with dates and amounts, and your net result for the year. Most platforms let you export a transaction history, so download it and save it. If you ever need to show the IRS how you arrived at a number, that history is your evidence. Tidy records also make the conversation with an accountant faster and cheaper.

A note for the UK and Australia

Outside the US, the picture is different, and the US platforms mostly block these countries anyway, so this is background rather than a how-to.

In the UK, winnings from gambling and from financial spread betting are generally not taxed for individuals, which is a long-standing quirk of UK law. But that treatment depends on how an activity is classed, and it does not extend to US prediction markets that are not available to UK users. In Australia, casual gambling winnings are generally not taxed for recreational punters, though the treatment of event-contract trading is uncertain and can change if it looks like a business. In both countries, the safe step is local professional advice, since this is general information, not tax advice for your situation.

When to talk to a professional

If your winnings are small, careful records and the conservative ordinary-income approach will usually see you right. The bigger your numbers, the more a professional earns their fee.

Once you are dealing with meaningful sums, or thinking about the Section 1256 position, get a CPA or tax adviser who understands derivatives. They can match the treatment to your wider tax picture and stand behind the filing if questions come later. Given that the rules here may change once the IRS weighs in, a yearly check-in is sensible. Questions about this guide? Email editorial@chipreign.com.

Frequently asked questions

Do you pay tax on prediction market winnings?

Yes. In the US, profits from prediction markets are taxable income and must be reported, whether or not the platform sends you a tax form. The unsettled question is the exact category and rate, not whether the money is taxable at all.

Does Kalshi send a 1099?

Only limited ones. Kalshi issues a 1099-INT for interest on your cash balance and a 1099-MISC for referral bonuses or credits above set thresholds, plus a limited 1099-B tied to certain crypto transfers. It does not issue a full 1099-B for your event-contract trades, so you self-report those gains.

How are Kalshi or Polymarket winnings taxed?

It is unsettled. The IRS has not issued specific guidance, so professionals point to three options: ordinary income, the conservative and common choice; Section 1256 60/40 treatment, an aggressive position; or gambling income, usually the worst. Get advice before choosing.

What if I do not get a tax form?

You still owe tax. The absence of a 1099 does not change your obligation to report income. The IRS requires you to report all income whether or not a third party told them about it, so keep your own records and report your net profit.

Can I deduct prediction market losses?

It depends on the treatment you use, and the rules tightened in 2026 for anything classed as gambling. Under an income or Section 1256 approach, losses generally offset gains, but the details matter and are unsettled. This is exactly the kind of question to put to a tax professional.

Is Section 1256 treatment allowed for prediction markets?

It is argued but not settled. Because these are CFTC-regulated contracts, some take the Section 1256 position for its 60/40 rate. But binary event contracts do not clearly fit the statute, and the IRS has not blessed it, so it carries more audit risk than the conservative ordinary-income route.

Are prediction market winnings taxed like gambling?

Not necessarily. Because they are financial contracts rather than gambling, many treat them as income instead, which can be more favorable than the gambling rules, especially after the 2026 limit on deducting gambling losses. The treatment is unsettled, so professional advice is worth it.

What records should I keep?

Keep your deposits, withdrawals, individual trades with dates and amounts, and your net result for the year. Export your transaction history from the platform and save it. Good records are your evidence if the IRS asks, and they make filing with an accountant far easier.

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