Forgot to Report Polymarket or Kalshi on Your Taxes? How to Fix It

If you left Polymarket or Kalshi activity off a past return, file Form 1040-X for that year, pay the extra tax and interest with it, and do it before the IRS contacts you. An amended return filed before first contact can keep the extra tax out of the base for the 20% accuracy penalty. If you actually lost money that year, amending may even produce a refund, as long as you are inside the refund window.

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.

Step 1: find out whether you owe anything

Don't start with the form. Rebuild the year first, because the result may be smaller than you fear. For each past year you traded:

• Pull all activity from every wallet and account, including the Polymarket proxy wallet.
• Include resolved losers you never redeemed. Leaving them out can turn a loss into an apparent gain. See unredeemed losing positions.
• Add rewards, interest and any crypto you sold to fund or leave the venue.
• Collect any forms you ignored at the time, such as a Kalshi 1099-INT or 1099-MISC.

A 2025 year falls under the old gambling loss rule. The 90% limit applies only to tax years beginning after December 31, 2025, so don't apply it to earlier years.

Step 2: pick a treatment and write down why

No guidance tells you how to classify event contracts, in any year. Use one position, document it and apply it across the years you are fixing. If a preparer is involved, have them sign off now, because the same position will shape your current return. See gambling vs capital gains for event contracts.

Step 3: file Form 1040-X

The IRS amended return page sets out the mechanics:

• Use Form 1040-X, with a complete amended Form 1040 and any new or changed forms and schedules, such as Form 8949 and Schedule D, or Schedule 1.
• You can usually e-file through tax software. You must file on paper if the return is for tax year 2021 or earlier, or if the original was filed on paper earlier in the current year.
• You can file up to three amended returns for the same year.
• Don't attach your state return. If the federal change affects state tax, contact your state tax agency and correct that separately.

Check the digital asset question on the amended return too. If you answered "No" but traded on Polymarket, the corrected answer is likely "Yes". See how to answer the digital asset question.

Pay when you file. Interest keeps running until the tax is paid, and paying with the return stops it.

What it costs

For individuals, a substantial understatement means understating tax by the greater of 10% of the correct tax or $5,000.

Example

You omitted a $12,000 net gain from your 2024 return, and your marginal rate was 24%. The extra tax is $2,880. That is under $5,000, so the substantial understatement test would not be met, although a negligence penalty is still possible: 20% of $2,880 is $576. You'd also owe interest from April 2025 until you pay.

Why timing matters: the qualified amended return

Under Treas. Reg. §1.6664-2(c), additional tax shown on a qualified amended return is treated as if it had been shown on the original return, which removes it from the underpayment that the accuracy penalty is calculated on. The main timing condition for an individual is filing before the IRS first contacts you about an examination of that return. The rule doesn't protect a fraudulent position.

That makes amending now better than waiting to see whether a letter arrives. If a notice has already arrived, read what to do about an IRS letter first, because the steps differ.

How far back does this go?

The IRS assessment rules are:

If you didn't file at all for a year you were required to, the fix is to file that return, not to amend. The clock doesn't start until you do.

If the omission looks deliberate, or the amounts are large and span several years, speak to a tax attorney before filing anything. Filing an amended return is a statement to the IRS, and privilege rules differ between attorneys and other preparers.

When amending gets you money back

Under capital treatment, a losing year you never reported can create a deduction of up to $3,000 and a carryforward. To claim a refund, you must generally file within 3 years of filing the original return or 2 years of paying the tax, whichever is later. A carryforward then flows through later years, which may mean amending those too.

Under gambling treatment there's no such help. Excess losses don't carry forward, and you'd need to have itemized.

Rebuilding old years

For Polymarket and Hyperliquid, the public history survives, so you can rebuild past years from the wallet. Run the free OddsFile check: paste an address and see your 2025 and 2026 P&L, no signup. For older years, or to decide how to treat old losses, take the records to a preparer. Keep the supporting file afterward; see how long to keep records.

FAQ

Will the IRS catch unreported Polymarket income?

Don't plan around that. Reporting obligations don't depend on a 1099, and on-chain history is public. An omission is an omission whether or not anyone finds it.

Should I amend for a small amount?

There's no minimum in the law. The IRS says to amend when your income or tax changes. A preparer can help you weigh a tiny correction, but the safe answer is to fix it.

Can I just report it on this year's return?

No. Income belongs to the year it was realized. Adding it to the current year leaves the old return wrong and overstates this one.

Do I need to amend if the IRS already corrected it?

No. The IRS says you don't need to amend if it already corrected the error on your return.