What Tax Rate Do You Pay on Prediction Market Winnings? 2026 Rates by Treatment

There is no special tax rate for prediction markets. Your profit is added to your other income and, in most cases, taxed at your marginal federal rate, which runs from 10% to 37% for 2026. Only positions held more than a year under capital treatment can reach the lower 0%, 15% or 20% long-term rates. What changes the bill most is not the rate but which amount gets taxed: your net profit, or your gross winnings.

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 2026 federal brackets

These are the rates for tax year 2026, the return you file in 2027, from the IRS inflation adjustments release. They apply to taxable income, which is income after the standard or itemized deduction.

The 2026 standard deduction is $16,100 for single filers and $32,200 for joint filers.

How a profit stacks on your income

Brackets apply in layers, so a win can straddle two of them. Take a single filer with $60,000 of wages and the standard deduction, which leaves $43,900 of taxable income. A $10,000 short-term profit is taxed like this:

The same $10,000 for someone with $150,000 of wages lands entirely in the 24% bracket, for $2,400. Look at your own taxable income from last year's Form 1040, then read the table from that point upward.

The rate under each treatment

The IRS has not said which treatment applies, so the rate depends on the position you and your preparer take.

Long-term rates

Short-term gains are taxed as ordinary income; gains on assets held more than a year get the lower rates. Under Rev. Proc. 2025-32, the 2026 breakpoints are:

Most event contracts settle within months, so few traders reach these rates. See long-term capital gains on Polymarket for when they can.

The Section 1256 blend

If Section 1256 applied, 60% of the gain would be taxed at long-term rates and 40% at ordinary rates. In the 24% bracket with a 15% long-term rate, that blends to 18.6%. In the 37% bracket with a 20% long-term rate, it blends to 26.8%. Whether event contracts qualify is contested, as covered in Section 1256 and prediction markets.

Why gambling treatment can beat any bracket

Gambling treatment uses the same ordinary rates, but it taxes gross winnings. From 2026, Section 165(d) allows only 90% of losses, capped at winnings, and only as an itemized deduction for non-professionals. Say you have $20,000 of winning markets and $15,000 of losing ones, a $5,000 net profit, in the 24% bracket:

The bracket did not change in any row. The base did. This is why two traders with identical results can report very different effective rates.

Taxes on top of the bracket

• Net investment income tax. A 3.8% tax can apply above $200,000 of modified AGI for single filers and $250,000 for joint filers. Whether it reaches your profit depends on the treatment. See self-employment tax and the NIIT.
• State income tax. Most states tax these gains as ordinary income, a few have no income tax, and gambling rules vary. See prediction market state taxes.
• Rewards and interest. Kalshi interest and Polymarket rewards are generally ordinary income regardless of how you treat the trades.

How to estimate your own rate

1. Find your 2026 taxable income before any trading.
2. Work out your net profit and, separately, your gross winnings and gross losses by market.
3. Apply the bracket table from your starting point under each treatment.
4. Add state tax and any NIIT.

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment, no signup. The estimate is a starting point for a conversation with your preparer, not a filing position.

FAQ

Is there a flat tax on Kalshi or Polymarket winnings?

No. Nothing in the tax code sets a flat rate for prediction markets. Profits are taxed at your own rates, and the rate depends on your income, holding period and treatment.

Are prediction market gains taxed like stocks?

They can be if you use capital treatment, but the IRS has not confirmed that treatment. A contract held a year or less is taxed at ordinary rates, the same as a short-term stock gain.

Does a bigger win push all my income into a higher bracket?

No. Only the slice above each threshold is taxed at the higher rate. Your other income keeps its lower rates.

What rate should I use for a quick estimate?

Your marginal bracket plus your state rate is a reasonable rough number for net profit. If you may use gambling treatment, run the estimate on gross winnings too, because that number can be far larger.