Are Prediction Market Winnings Taxable? How Polymarket, Kalshi and Event Contracts Are Taxed

Yes. In the US, prediction market winnings are taxable income, whether you trade on Kalshi, Polymarket, Robinhood or a crypto venue like Hyperliquid. The open question is not whether you owe tax but how the gains and losses are classified: as other income, as capital gains, as Section 1256 contracts (60/40), or as gambling. That choice changes your rate, which forms you file and, above all, whether your losses count.

OddsFile is software, not tax advice. The IRS has not issued guidance on how prediction-market contracts are taxed. This article explains the options and the sources behind them; a tax professional can tell you which position fits your situation.

This page is the hub for our prediction market tax guides. It explains the general rule, the four competing treatments, what each venue actually sends you, and where to go next for your specific situation.

Why prediction market income is taxable

US tax law starts from a simple rule: gross income means "all income from whatever source derived" (IRC §61). There is no exemption for event contracts, binary options or bets. Profit from a contract that resolves in your favor, or from selling a position for more than you paid, is income.

Two things make prediction markets harder than stocks:

1. No IRS guidance. As of October 2026 the IRS and Treasury have issued no ruling, notice, FAQ or regulation on how event contracts are taxed. Practitioners reason by analogy and disagree.
2. Incomplete information returns. Most venues do not send a trade-level Form 1099 for event-contract results. Polymarket's international exchange and Hyperliquid are non-custodial and send nothing. Kalshi sends forms for interest, rewards and crypto activity, plus an annual P&L statement, but its help center describes no trade-level 1099 for contract results (Kalshi help).

So the burden of computing the numbers, and choosing a defensible treatment, falls on you and your preparer.

The four ways event contracts can be taxed

Each treatment has its own deep dive:

• Section 1256 and prediction markets: the statute, who might qualify, and why it's contested.
• Gambling vs capital gains for event contracts: side-by-side scenarios with numbers.
• The 2026 gambling loss 90% limit: what the One Big Beautiful Bill Act changed.

A worked example: same trades, four tax results

Assume a single filer in the 24% bracket with a 15% long-term rate, trading only in 2026. Across the year:

• Markets that ended in profit: +$30,000
• Markets that ended in a loss: −$20,000
• Net profit: +$10,000
• No other itemized deductions; 2026 standard deduction is $16,100 (IRS).

The same $10,000 of real profit produces federal tax between $1,860 and $6,744 depending on classification. The gambling line is high because gross winnings are fully taxable while the loss deduction is cut to 90% and only helps above the standard deduction. These are estimates on assumed rates, ignoring state tax, the 3.8% net investment income tax and phase-outs.

What each venue sends you

Whether or not a form arrives, the income is reportable. A missing 1099 does not make income non-taxable, and an incomplete one does not make it correct.

The crypto layer: Polymarket and Hyperliquid

If you trade with USDC on-chain, there's a second question on top of event-contract treatment. The IRS treats digital assets as property (Notice 2014-21; IRS digital assets page). Outcome tokens on Polymarket are themselves tokens, and every buy spends USDC. Practically:

• Buying and selling outcome tokens are disposals you can report on Form 8949 if you take the capital-asset view, using the digital asset boxes (G through L) introduced for 2025 returns.
• Spending USDC is technically a disposal of USDC, usually with a gain or loss near zero because USDC trades near $1.
• You must answer the digital asset question on Form 1040 if you received, sold, exchanged or otherwise disposed of digital assets.

Situations that change the answer

Your numbers, not just the law, decide which treatment helps or hurts. Start with the guide that matches you:

• You won big: Polymarket big win taxes
• You lost money overall: Are Polymarket losses tax deductible? and Kalshi losses
• You never redeemed losing positions: Unredeemed losing positions
• You used several wallets: Multiple wallets
• Kalshi's numbers don't match yours: Kalshi 1099 doesn't match
• You paid fees: Polymarket fees and taxes
• You trade perps: Hyperliquid funding payments
• You need to file: Form 8949 for prediction markets and TurboTax for prediction markets
• You live in a state with income tax: Prediction market state taxes
• You want to estimate first: Prediction market tax calculator

Outside the US, the rules differ sharply: see Polymarket taxes in the UK, Canada and Australia.

How professionals approach the choice

Because no treatment is settled, a preparer will usually weigh:

1. The contract type. Sports and election contracts look more like wagers; contracts on CPI, interest rates or Bitcoin prices look more like financial derivatives. One commentator, CPA Robert Green, argues contracts should not all be forced into one category (Green Trader Tax).
2. The venue. A CFTC-regulated exchange (Kalshi, Polymarket US) supports different arguments than an offshore, on-chain venue.
3. Your results. Net losers benefit most from capital treatment and carryforwards. Big net winners care about rate. Break-even, high-volume traders are hurt most by gambling treatment in 2026.
4. Consistency and documentation. Whatever position is taken, it should be applied consistently and supported by complete records: every fill, fee, settlement, deposit and withdrawal.
5. Disclosure. For positions that are aggressive, such as Section 1256, some preparers consider Form 8275 disclosure.

What's changing in 2026

• The 90% gambling loss limit applies to tax years beginning after December 31, 2025. H.R. 10357, which would restore 100%, passed the House Ways and Means Committee 38–5 on September 16, 2026, but is not law as of this writing.
• 1099-DA basis reporting begins for covered digital assets acquired on or after January 1, 2026 at custodial brokers. It does not reach non-custodial venues.
• Reporting thresholds for Forms W-2G and 1099-MISC rose to $2,000 for 2026 payments.
• Court cases over whether sports event contracts are swaps or gambling are splitting the federal circuits. They decide regulatory jurisdiction, not federal income tax, but preparers are watching them.

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment side by side, no signup.

FAQ

Are prediction market winnings taxable if I didn't get a 1099?

Yes. Income is taxable whether or not an information return is issued. The 1099 is a reporting tool for the IRS, not the source of the obligation.

Are Kalshi winnings taxed as gambling?

The IRS hasn't said. Kalshi is a CFTC-regulated exchange, which supports financial-contract arguments, but sports contracts in particular are argued by some to be wagers. Practitioners use capital, other-income, 1256 and gambling positions. See Kalshi taxes and the 1099.

Is Polymarket taxed as capital gains?

Many practitioners treat Polymarket outcome tokens as capital assets because they are crypto tokens bought and sold for USDC, which the IRS treats as property. It is a common position, not a settled rule. See Polymarket taxes.

Can I deduct prediction market losses?

It depends on the treatment. Under capital treatment, net losses offset gains and up to $3,000 of ordinary income a year, with the rest carried forward. Under gambling treatment, losses only offset winnings, only at 90% from 2026, and only if you itemize. Under the other-income approach, a net loss generally isn't deductible.

Do I pay tax on open positions at year end?

Under capital or gambling treatment, generally no: tax is triggered when you sell or the market resolves. Under Section 1256, open positions are marked to market on December 31 and taxed as if sold.

Which treatment should I use?

That's a judgment for you and a tax professional based on your contracts, venue and results. OddsFile shows the estimated outcome under each so the conversation starts from real numbers.