Polymarket Taxes: The Complete Guide (2026)

Yes, you pay taxes on Polymarket profits. US taxpayers owe federal income tax on worldwide income, and nothing in the tax code exempts gains from prediction markets. What nobody can tell you with certainty is how Polymarket taxes work: the IRS has not said whether outcome shares are capital assets, gambling wagers, Section 1256 contracts or something else. This guide explains every taxable event on Polymarket, the four treatments people use, and what each one costs on the same set of trades.

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.

The short version

• Profits are taxable. The open question is classification, not whether income exists.
• There is no IRS ruling on event contracts as of October 2026. Practitioners use four approaches: capital gains, "other income," Section 1256 (60/40), or gambling.
• The international Polymarket exchange does not send you a 1099. You reconstruct everything from your wallet's on-chain history. See does Polymarket send a 1099?.
• Gambling treatment got worse in 2026. Only 90% of losses are deductible, and only if you itemize. See the 2026 gambling loss 90% limit.
• Losing positions you never redeemed still count. Most wallets have dozens of them, and missing them overstates your profit.

What is taxable on Polymarket

Polymarket is a market for outcome shares. Each share pays $1 if its outcome happens and $0 if it doesn't, and shares trade in between. Your activity creates these taxable or reportable events:

The IRS treats digital assets as property (Notice 2014-21, IRS digital assets page). Polymarket's international exchange settles in USDC on Polygon, so every buy is also a disposal of USDC. Because USDC tracks $1 closely, the gain on that leg is usually a rounding error, but it is still a disposal, and it means you answer "yes" to the digital asset question on Form 1040.

The four possible treatments

The core decision is how to classify outcome shares. Each approach below has practitioners who use it. None has been endorsed by the IRS.

A few notes on fit:

• Capital asset is the approach most crypto tax guides use for Polymarket, because outcome shares are transferable tokens you buy and sell, and the international exchange looks like a crypto venue. See prediction market trades on Form 8949.
• Section 1256 requires a "regulated futures contract" or similar instrument traded on a qualified board or exchange (§1256(g)). Polymarket's international exchange is an offshore, non-custodial venue, so practitioners treat that claim as very weak there. Polymarket US runs on a CFTC-regulated exchange, but even CFTC-listed event contracts are contested. See Section 1256 and prediction markets.
• Gambling is the conservative reading for sports and election markets that look like bets, but it is now the costliest for anyone with meaningful losses. See gambling vs capital gains for event contracts.

Worked example: same trades, four outcomes

Assume a single filer who traded 40 Polymarket markets in 2026, all closed within the year:

• Winning markets: $12,000 of gains
• Losing markets: $9,000 of losses (including $6,500 of positions that went to zero and were never redeemed)
• Fees: already included in the numbers above
• Net profit: $3,000

Assumed rates for illustration: 24% ordinary, 15% long-term capital gains. Standard deduction for 2026 is $16,100 (single).

Now flip it. Same trader, but the year ends with $9,000 of gains and $12,000 of losses, a $3,000 net loss:

The spread between treatments is wide, and it is widest for traders who lost money. That is why the classification question matters far more than the rate difference. Try it with your own numbers in the prediction market tax calculator.

Polymarket US vs Polymarket international

There are now two Polymarkets, and the distinction matters for taxes.

• Polymarket international is the original on-chain exchange. It lists US users as "close-only" on its geoblock documentation, meaning US persons can close existing positions but not open new ones. Activity is recorded on the Polygon blockchain, settles in USDC, and the venue does not issue US tax forms.
• Polymarket US is operated by QCX LLC, a CFTC Designated Contract Market Polymarket acquired in 2025. It offers fully collateralized event contracts to US users through a regulated account. A regulated intermediary is more likely to issue information returns, but check Polymarket US's own tax documentation for what it actually sends; we have not seen a published form schedule.

If you used both, treat them as two separate accounts in your records. The international activity needs wallet reconstruction; the US account may come with statements.

Fees

Polymarket charges taker fees on some market categories (geopolitical markets have been fee-free), and the schedule changed in 2026. On-chain, the fee shows up as the gap between the USDC you paid and shares × price. Fees on a purchase increase your cost basis; fees on a sale reduce your proceeds. Under gambling treatment, the 2026 amendment to §165(d) folds wagering expenses into "losses," so fees are subject to the same 90% limit. Details in Polymarket fees and taxes.

Losing positions you never redeemed

Polymarket's interface asks you to redeem winners. Losers are worth nothing, so almost nobody redeems them, and they sit in your wallet as worthless tokens. A tool that only reads trades and redemptions sees the purchase but never sees the position close, and it reports your profit too high.

In our testing on a live wallet, adding unredeemed losers and fixing redemptions that lacked an asset id turned a reported +$225.84 into a real −$206.78. The loss belongs to the year the market resolved, not the year you happened to click "redeem." See unredeemed losing positions.

Records you need

Because no 1099 arrives, the burden of proof is on you. Keep:

1. Every wallet address you traded from, including the Polymarket proxy wallet (the address shown in your Polymarket profile, which differs from your login wallet). If you used several, see taxes with multiple Polymarket wallets.
2. Trade history: date, market, outcome, shares, price, fee.
3. Resolutions and redemptions, including the date each market resolved.
4. Rewards with the date and USD value received.
5. Deposits and withdrawals to reconcile cash in and out with your bank and exchange records.
6. The method you chose (FIFO, specific identification) and the treatment you and your preparer chose, with your reasoning. Consistency year to year matters.

The data lives on-chain and in Polymarket's public data API, so it can be rebuilt even years later.

Run the free OddsFile check: paste your Polymarket address and see your 2026 P&L, including unredeemed losers, under each treatment. No signup.

How the 1099-DA rules affect Polymarket

Form 1099-DA is the new broker form for digital assets: gross proceeds for 2025 sales, cost basis for covered assets bought from 2026. It applies to custodial brokers. The rule that would have extended it to DeFi front ends was nullified by Congress in April 2025, so the international Polymarket exchange is not expected to issue one. You may still receive a 1099-DA from the exchange where you bought or sold the USDC you funded Polymarket with. That form covers the USDC, not your Polymarket P&L. More in 1099-DA explained for Polymarket and Hyperliquid users.

State taxes

Most states start from federal adjusted gross income, so whichever federal treatment you use flows through. Some states handle gambling losses differently from the federal rule, and not every state has adopted the 90% limit. See prediction market state taxes.

Common mistakes

• Reporting only redemptions. Sales before resolution and worthless losers are disposals too.
• Netting everything into one number without records. Each method needs per-market detail if questioned.
• Assuming no 1099 means not reportable. Reporting obligations don't depend on information returns.
• Mixing treatments across years without a reason. Switching to whichever is cheapest each year is hard to defend.
• Ignoring rewards. Liquidity rewards are income when received, separate from trading P&L.

FAQ

Do you pay taxes on Polymarket winnings?

Yes. US taxpayers owe tax on profits regardless of where the platform is based or whether a form is issued. What is unsettled is whether the profit is a capital gain, other income, Section 1256 gain or gambling winnings.

Does Polymarket report to the IRS?

The international exchange does not issue 1099s to US users. Polymarket US is a regulated exchange and may issue forms; check its documentation. The blockchain record is public either way.

Is Polymarket taxed as gambling?

It can be, but the IRS hasn't said it must be. Many practitioners treat Polymarket shares as capital assets. Gambling treatment is a reasonable reading for bet-like markets but is expensive from 2026 because of the 90% loss limit.

Can I deduct Polymarket losses?

Under capital treatment, yes: losses offset gains and up to $3,000 of other income per year, with the rest carried forward. Under gambling treatment, only 90% of losses and only if you itemize. See are Polymarket losses tax deductible?

Do I need to report Polymarket if I made under $600?

There is no minimum. Thresholds like $600 or $2,000 govern when a payer sends a form, not whether income is taxable.

When is a resolved market taxed?

Generally in the year the market resolves and your shares become worth $1 or $0, even if you redeem later. A market that resolves on January 2 belongs to the new year.

Next steps

Pull your full history, including unredeemed losers, and look at the numbers under each treatment before you talk to a preparer. Run the free OddsFile check to see your Polymarket P&L in a few seconds, then take the treatment comparison and audit trail to a tax professional. For the bigger picture, read are prediction market winnings taxable?