New Jersey Prediction Market Taxes: Income Categories and Net Gambling Winnings

New Jersey is kinder to gambling treatment than federal law, but harsher on losses. It lets you report net gambling winnings directly, so you can subtract same-year losses without itemizing. But New Jersey works by income category: a net loss in one category can't offset another, and it doesn't carry to another year. So a Kalshi or Polymarket loss won't reduce your wages on the New Jersey return, and the federal $3,000 deduction has no state equivalent.

OddsFile is software, not tax advice. The IRS has not issued guidance on how prediction-market contracts are taxed, and we found no New Jersey guidance either. This article explains the options and the sources behind them; a tax professional can tell you which position fits your situation.

New Jersey's category system

New Jersey doesn't start from federal AGI. It taxes listed categories of income. The NJ-1040 instructions say you can net losses with gains in the same category, but not apply a net loss in one category against income in a different one. For example, gambling losses can't be subtracted from wages. Net losses aren't carried back or forward.

Two categories matter:

New Jersey's rates are progressive; see the NJ-1040 instructions for the current schedule.

Gambling: net, with limits

The Division of Taxation says you may use gambling losses to offset gambling winnings from the same year. If losses exceed winnings, you report zero. Technical Bulletin TB-20(R) covers the details.

You may need to substantiate losses. The Division accepts a daily log or journal of wins and losses, along with supporting records, and asks for a statement showing total winnings and losses if you report net. That's a helpful fit for per-market records, though nothing says how a "session" applies to event contracts.

We found nothing in the Division's pages applying the federal 90% limit, and netting doesn't depend on Schedule A. That's our reading of how the state rule works. Check the 2026 instructions when published.

Worked example

Assume a 6% New Jersey marginal rate, for illustration. A resident has $20,000 of winning markets and $15,000 of losing ones.

Compared with Illinois, where gambling treatment puts the gross in the base, this is a much better outcome.

Losing years

Change it to $10,000 of wins and $16,000 of losses.

If next year is a $6,000 gain, New Jersey taxes the whole gain. Your multi-year economics might be flat, but New Jersey counts each year alone.

Mixing categories

Your category choice can matter if you've got other gains.

You don't get to pick a category for the state result alone. New Jersey has its own definitions, and it hasn't addressed event contracts. Your federal position and your state position should have a reason behind them.

Withholding

The Division says New Jersey withholds 3% of gambling payouts for residents and nonresidents, for the gambling types that rule covers. We've seen no sign that prediction market payouts are handled that way, and neither Kalshi nor Robinhood describes withholding. So you should plan to pay through estimated taxes instead. New Jersey has its own estimated system; its GIT-8 bulletin explains it.

Interest and rewards

Interest has its own line on the NJ-1040. Rewards and credits don't have a clear category. Ask a preparer, and keep them apart from your trading results in your records. See Kalshi interest and rewards.

Nonresidents

Nonresidents use Form NJ-1040NR, which has its own sourcing rules. A nonresident trading from outside New Jersey should check with a preparer rather than assume.

If trading is a business

The instructions send gains from property owned by a sole proprietorship, partnership or S corporation to Schedule NJ-BUS-1. If you run a trading business, your categories may change, which could help with some losses. See trader tax status.

What to do

1. Keep gross winnings and losses by market, and by date.
2. Keep a log that meets the Division's standard.
3. Decide which category your position implies, and write down why.
4. Don't enter a negative number or a carryforward.
5. Attach the requested statement if you report net gambling winnings.

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment, no signup. For the wider state picture, see prediction market state taxes.

FAQ

Are Kalshi winnings taxable in New Jersey?

Yes. They fall into a category depending on your position, most likely net gambling winnings or gains from disposition of property.

Can I deduct gambling losses without itemizing in New Jersey?

Yes, against gambling winnings in the same year. You report the net.

Can a net loss reduce my wages in New Jersey?

No. A net loss can't cross categories.

Does New Jersey have a loss carryforward?

No. Net losses aren't carried back or forward.