Reporting Prediction Market Income as Other Income on Schedule 1, Line 8z

To report prediction market profit as other income, you enter your net profit for the year on Schedule 1, line 8z, with a short description such as "Event contract net income." It flows to Form 1040 and is taxed at ordinary rates. This is the simplest method, and it matches Kalshi's single P&L number. Its main weakness is a losing year: a net loss generally does nothing. No authority requires this approach, and none endorses it.

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.

Where it goes

Line numbers below come from the 2025 form and the 2026 draft of Schedule 1, which keep the same layout. Drafts can change.

Don't confuse the neighboring lines:

• 8b, Gambling: gross winnings under gambling treatment.
• 8i, Prizes and awards: for some promotions.
• 8v, Digital assets received as ordinary income: for crypto rewards not reported elsewhere.

A worked entry

Kalshi's 2026 P&L statement shows +$4,200, which Kalshi says includes fees and rebates. You also have $160 of interest on a 1099-INT.

At 24%, the trading line adds about $1,008 of federal tax. Write the description plainly. An accurate label is better than a vague one, and a preparer may want to name the venue.

For a mixed year across venues, net each venue, then total them. If Polymarket made $1,000 and Kalshi lost $400, a single net of $600 is the natural entry, with your workpaper showing the components. There's no form that prescribes this.

Why people use it

• It's simple. One line, from one number.
• It matches the paperwork. Kalshi gives a single net figure, and Robinhood's annual statement also shows net profit or loss.
• It doesn't claim too much. You're not asserting a capital asset or Section 1256 status. You're reporting income under the broad Section 61 definition.
• Net, not gross. Unlike gambling treatment, it doesn't report your gross winnings in AGI.

Its weaknesses

Losing years. There's no good place for a net loss on line 8z. Other income isn't a loss line, so a net loss is generally not deductible under this approach. If you lose $9,000, you'd get no benefit under this treatment, where capital treatment would give you $3,000 this year and a carryforward. See are Kalshi losses tax deductible?

Inconsistency. If you use line 8z in winning years and switch to capital treatment in losing years, that's hard to defend. Decide on your approach up front.

No loss netting against other gains. A capital loss from stocks can't reduce this line, and income on line 8z isn't a capital gain, so stock losses won't offset it beyond the $3,000 limit.

No long-term rates. Everything is ordinary, even a position held for 14 months.

Netting assumption. An IRS reviewer who thinks these are wagers would say winnings should be reported gross, because the Publication 529 rule says you can't reduce gambling winnings by gambling losses and report the difference. If you net on line 8z, you're relying on the position that these aren't wagers.

Polymarket and the crypto layer

For Polymarket's on-chain exchange, this method is less clean. Your trading result can go on line 8z, but stablecoin sales and crypto you swapped to fund your account are still property transactions, so they belong on Form 8949, and the digital asset question is still Yes. Rewards go on line 8v, or Schedule C if you run a business.

Which traders it fits

For a small net gain, line 8z and short-term capital treatment often cost the same federal tax, since both use ordinary rates. The difference shows up in a future loss year or when you have other capital losses. See gambling vs capital gains.

Entering it in software

Most consumer software has a "miscellaneous income" or "other income" screen that leads to line 8z. It may ask for a description and an amount. See Kalshi and Polymarket in TurboTax for where each treatment goes.

Avoid entering this as a "gambling" item in software unless that's your treatment. It will land on line 8b, and the software may then ask about losses on Schedule A.

Records to keep

Even a one-line method needs support:

• Kalshi's annual P&L statement
• Trade-level history behind it, to answer questions
• A short note explaining your treatment
• Polymarket or Hyperliquid wallet addresses and results

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment, no signup. Comparing the other-income row with the capital row is a quick way to see what a loss year would cost you.

FAQ

Can I enter a negative number on line 8z?

A net loss generally has no benefit here. If you have a loss, talk to your preparer about whether capital treatment is the better position, rather than forcing it into this line.

Is line 8z allowed for event contracts?

The line covers other income not reported elsewhere. No IRS guidance names event contracts, so this is a position, not a confirmed rule.

Does line 8z income trigger self-employment tax?

Generally not by itself, unless the activity is a business. See self-employment tax and the NIIT.

Do I still answer the digital asset question?

Yes, based on what you did. If you only traded Kalshi in dollars, the answer is generally No.