Do You Need to Pay Estimated Taxes on Prediction Market Profits?

You probably need to make an estimated tax payment if your prediction market profit will leave you owing $1,000 or more when you file and your withholding won't cover at least the smaller of 90% of this year's tax or 100% of last year's. For 2026 the last payment is due January 15, 2027. Meeting a safe harbor avoids the underpayment penalty, but you still have to pay the balance by April 15, 2027.

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.

Why this comes up for traders

Federal tax is pay-as-you-go. Wages have tax withheld. Trading profits usually don't. Neither Kalshi's tax documentation page nor Robinhood's event contract tax page describes any withholding on contract results, and an on-chain Polymarket redemption has no payer to withhold anything. If you had a good year, the tax is likely still unpaid. See do Kalshi and Polymarket withhold taxes for what to check on your own account.

The rule, from Form 1040-ES

The 2026 Form 1040-ES says you must generally pay estimated tax if both of these apply:

1. You expect to owe at least $1,000 for 2026 after subtracting withholding and refundable credits.
2. You expect withholding and refundable credits to be less than the smaller of 90% of the tax on your 2026 return or 100% of the tax on your 2025 return.

If your 2025 AGI was more than $150,000 ($75,000 if married filing separately), replace 100% with 110%. You also generally owe no estimated tax if you were a US citizen or resident for all of 2025 and had no tax liability that year.

The 2026 due dates

Form 1040-ES adds an exception for the fourth payment: you can skip it if you file your 2026 return by February 1, 2027 and pay the whole balance with it. For most traders, waiting for records makes that difficult, so a January payment is the simpler route.

Worked examples

Withholding already covers the safe harbor. Maya's 2025 total tax was $9,000 and her AGI was $85,000. Her 2026 withholding will be $9,100. In October she makes $30,000 on Kalshi. Her withholding exceeds 100% of last year's tax, so she shouldn't owe an underpayment penalty. She will owe a large balance in April, though, so setting the money aside still matters.

Withholding falls short. Alex's 2025 tax was $9,000, his 2026 withholding is $7,000, and his 2026 tax will be about $15,000. Ninety percent of this year's tax is $13,500, and 100% of last year's is $9,000. The smaller figure is $9,000, so he needs $2,000 more paid in to reach the safe harbor.

Higher income. Sam's 2025 AGI was $200,000 and his 2025 tax was $32,000. His prior-year safe harbor is 110% of that, or $35,200.

If your profit came late in the year

The penalty is figured period by period, so a big win in October can look like you underpaid in April even though you had no profit then. The fix is the annualized income installment method, which matches required payments to when you actually earned the income. You claim it on Form 2210, Schedule AI. You'll need dated results, which is one more reason to keep records by market and by close date rather than a single annual number.

Which number to estimate

Your estimate depends on the treatment, and the IRS has not settled that.

If you are undecided, estimating under the more expensive treatment reduces the risk of a shortfall, and any overpayment comes back when you file. The IRS page on gambling income separately notes that you may be required to pay estimated tax on gambling winnings. The net investment income tax is also subject to the estimated tax rules, so include it if you expect to cross the threshold.

What a shortfall costs

The underpayment penalty works like interest on the amount you were short, for the time you were short. The IRS rate for individual underpayments is 7% per year for the fourth quarter of 2026. A $2,000 shortfall for three months costs about $35. That isn't ruinous, but it's avoidable.

How to pay

• Online: the IRS pay page lists online, phone and app options.
• By mail: use a Form 1040-ES voucher.
• Through your job: if you have wages, ask your employer to withhold more on your remaining 2026 paychecks with a new Form W-4. Publication 505 treats withholding as paid in four equal parts by default, so extra withholding late in the year can cover earlier periods too.

Check your state as well. Most income-tax states have their own estimated payments, with their own dates.

A short checklist before January 15

1. Pull your 2026 P&L by market across every venue and wallet.
2. Find the total tax line on your 2025 Form 1040.
3. Add up your 2026 withholding so far and what's still to come.
4. Compare it with the smaller of the two safe harbors.
5. Pay the gap, or adjust your W-4 if you still have paydays left.

For step 1, run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment, no signup. To turn that into a rough tax figure, see what tax rate you pay.

FAQ

I have no job. Do I still pay quarterly?

Generally yes, if you expect to owe $1,000 or more, unless your 2025 tax was zero under the Form 1040-ES exception.

Can I wait until April to pay?

You can, and if your withholding met a safe harbor there is no underpayment penalty. If not, you may owe the penalty on the shortfall even if you pay in full by April 15.

Does a losing year need estimated tax?

Usually not under capital or other-income treatment. Under gambling treatment you could still owe tax on gross winnings, so check before assuming zero.

Do I send the payment to Kalshi or Polymarket?

No. Estimated tax goes straight to the IRS, and to your state if it has its own system.