The Form 1040 Digital Asset Question: How to Answer If You Trade Polymarket or Kalshi

If you traded on Polymarket's on-chain exchange or Hyperliquid, check Yes: paying for shares with a stablecoin, receiving a stablecoin back, and collecting rewards are all digital asset transactions. If you only traded Kalshi or Robinhood event contracts in dollars and never touched crypto, the answer is generally No, because those contracts aren't recorded on a blockchain. Checking Yes doesn't add tax by itself. It just has to be true.

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.

What the question asks

The question sits on page 1 of Form 1040, and the 2026 draft form keeps it. It asks whether, at any time during the year, you (a) received a digital asset as a reward, award or payment for property or services, or (b) sold, exchanged or otherwise disposed of a digital asset or a financial interest in one.

The Form 1040 instructions define digital assets as digital representations of value recorded on a cryptographically secured distributed ledger or similar technology, and name cryptocurrencies, stablecoins and NFTs as examples. They also say anything with those characteristics is treated as a digital asset. You must answer whether or not you got a Form 1099-DA, and you can't leave the question blank.

Answers by venue

The IRS has not specifically addressed outcome tokens, but you don't need to decide that to answer. On Polymarket's on-chain exchange the collateral alone is a digital asset. Since April 2026 that collateral has been pUSD, an ERC-20 token backed by USDC; before that it was USDC.e.

When No is the right answer

The IRS digital assets page says to check No if you:

• didn't own any digital assets;
• only held digital assets in a wallet or account, with no transactions in the year;
• bought digital assets with US dollars and didn't sell them;
• moved digital assets between wallets or accounts you own or control, unless you paid a transaction fee with digital assets.

That last exception matters. Moving USDC from an exchange to your own wallet sounds like a clean transfer, but if the network fee was paid in crypto, the IRS calls that a digital asset transaction.

Edge cases traders actually hit

You deposited USDC in January and did nothing else. If you bought the USDC with dollars and only moved it, watch the fee point above. If you traded at all, the answer is Yes.

You only held positions all year, with nothing closing. If you held tokens and made no transactions, you may fit the "only held" line. Any purchase with a stablecoin, reward or redemption during the year changes that. Check by date.

A market resolved but you didn't redeem. A resolution with no action from you is not obviously a disposal, and the timing of the loss is its own question. See unredeemed losing positions. If you had any other transaction that year, the answer is Yes regardless.

You used gambling or other-income treatment. The answer doesn't change. The question is about transactions in digital assets, not about the character of your profit. If you report Polymarket as gambling, the stablecoin legs are still digital asset transactions.

Joint return. If either spouse has reportable activity, a single answer covers the return, so Yes applies if either of you qualifies.

What Yes does and doesn't do

Checking Yes doesn't create income. But it does tell the IRS you had digital asset activity, so the return should show something consistent with that. A Yes with no Form 8949, no Schedule 1 entry and no explanation isn't illegal, but it looks unfinished. If you traded at a real loss, report the loss; see reporting trades on Form 8949.

The form is signed under penalties of perjury. A wrong No after a year of on-chain trading is worse than a Yes with small numbers.

If you answered wrong last year

If you checked No for a year you traded Polymarket, and you also omitted the income, fix both with Form 1040-X. See how to fix unreported prediction market income.

How to check your year quickly

1. List every venue and wallet you used.
2. Ask whether any of them involved a token on a blockchain.
3. Look for rewards, swaps, sales, and fees paid in crypto.
4. Note the date of each so you know which tax year it falls in.

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your activity for 2025 or 2026, no signup. If you see any trades in a year, that year's answer is almost certainly Yes.

FAQ

Do I check Yes if I lost money on Polymarket?

Yes. The question asks whether a transaction happened, not whether you made a profit.

Do I check Yes if I only used Kalshi?

Generally No, unless you bought, sold or exchanged crypto or received crypto rewards in the year. Other crypto activity anywhere counts, even if it had nothing to do with Kalshi.

Does a Yes trigger an audit?

The IRS doesn't publish how it uses the answer. Answer it truthfully and keep your records.

I got a 1099-DA, but only moved crypto. What now?

Answer based on what you actually did, and reconcile the form on your return. The IRS says a transfer between your own wallets is non-taxable even if you receive an information return.