US Citizen Living Abroad? How Your Polymarket or Kalshi Gains Are Taxed

US citizens living abroad report prediction market gains on a US return just like anyone else, because the US taxes citizens on worldwide income. The foreign earned income exclusion won't help: it covers pay for personal services, not trading profit. You may also owe tax where you live, and a foreign tax credit could reduce double taxation. The IRS hasn't said how contracts are classified, so the same open questions apply, plus some extras.

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 exclusion doesn't cover trading

The foreign earned income exclusion applies to foreign earned income, defined as wages, salaries, professional fees and other amounts paid for personal services you rendered. For 2026, the maximum is $132,900 per person. You claim it on Form 2555.

Publication 54 is the IRS's guide for citizens abroad. Investment gains aren't pay for services, so capital treatment falls outside. Gambling winnings aren't pay for services either. A true trading or gambling business abroad is a harder question: net profit from personal services can be earned income in some cases, but trading gains are capital by default. Get advice before you claim it.

The exclusion can raise your rate

If you exclude wages, your trading profit doesn't start at the bottom bracket. The Form 1040 instructions use a Foreign Earned Income Tax Worksheet that taxes remaining income as if the excluded amount were still there. So a $10,000 gain for someone excluding $100,000 may sit in a much higher bracket than you'd expect.

Example

A single filer abroad earns $120,000 of foreign wages, all excluded, and has a $20,000 net short-term gain in 2026.

That $3,900 is taxed in a higher band, not at 10%. It's a much better outcome than without the exclusion, but it isn't zero. Your software should apply the worksheet.

Double taxation

Your country of residence may tax the same gain, under its own classification. It could treat it as capital gain, gambling, or nothing at all. The UK, Canada and Australia posts show how differently those three treat it.

If you pay foreign income tax on the gain, you may be able to claim the foreign tax credit on Form 1116. A mismatch can reduce the benefit. If your country calls it gambling and the US calls it capital, or the years differ, the credit may not line up. Tax treaties rarely speak to this directly. A cross-border adviser is worth the cost once amounts are meaningful.

Filing dates

US citizens abroad generally get an automatic two-month extension to June 15 to file, if they meet the conditions. Interest still runs on tax unpaid after April 15, so pay by then if you owe. Estimated tax rules still apply.

Foreign account forms

Living abroad means higher Form 8938 thresholds: $200,000 at year end or $300,000 at any time for single filers, and $400,000 or $600,000 for joint filers. Your foreign bank accounts usually do trigger the FBAR, even if Polymarket doesn't. The IRS page says the FBAR is due April 15, with an automatic extension to October 15.

A wallet held in self-custody is the same analysis wherever you live: FinCEN's current notice doesn't treat a virtual-currency-only foreign account as reportable, but Form 8938 is unsettled.

Your US state

Moving abroad doesn't always end state tax. Some states keep treating you as a resident based on ties, such as a home. If you keep a state domicile, state rules can still apply. Check before you assume zero.

Venue access

Being a US person abroad doesn't change Polymarket's or Kalshi's terms for you, and local rules may restrict the venue where you live. Tax applies to what you actually did, whether or not a venue allowed it. Don't confuse tax advice with access advice.

Currency

If your bank account is in another currency, you still report in US dollars. For stablecoin or USD trading, your amounts are already in dollars. If you move foreign currency into crypto, the fiat exchange may have its own small gain or loss, and you need the exchange rate at the date. Keep it simple: record the USD value at every step.

Digital asset question

The Form 1040 question applies to you the same way.

What to do

1. Keep separate records of earned income and trading results.
2. Run the Foreign Earned Income Tax Worksheet, or use software that does.
3. Check your residence country's rule early, because it may have a different tax year.
4. Add up your foreign accounts for the FBAR.
5. Pay by April 15 even if you file in June.

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment, no signup. For the US side, see are prediction market winnings taxable?

FAQ

Do I need to report Polymarket if I live abroad?

Yes, if you're a US citizen or resident for tax. The US taxes worldwide income.

Does the $132,900 exclusion cover my trading?

No. It applies to pay for personal services.

Does Polymarket being offshore matter?

The location doesn't remove US tax. It can affect foreign reporting questions.

Can a foreign tax credit wipe out US tax?

Possibly, in part, if you paid foreign income tax on the same income. Classification and timing mismatches can limit it.