Last updated: April 2026
How prediction market winnings are taxed, what forms you'll get, and how to file. Updated for 2026 tax year.
This guide is for informational purposes only and does not constitute tax advice. Tax laws are complex and your situation may differ. Consult a qualified tax professional for advice specific to your circumstances.
Whether you're looking up Kalshi taxes, Polymarket crypto tax implications, or Robinhood event contract reporting — this guide covers all three.
Prediction market profits are taxable income in the United States. How they're taxed depends on which platform you use, how the IRS classifies your activity, and whether you're trading on a regulated or unregulated exchange.
Quick Answer
Kalshi users get favorable 60/40 tax treatment. Polymarket users face ambiguity.
For the legal status of prediction markets by state, see our state-by-state legal guide.
Kalshi is a CFTC-registered Designated Contract Market — the first prediction market exchange to receive this designation (approved 2020). This regulatory status has direct tax consequences.
Kalshi contracts qualify as Section 1256 contracts under the Internal Revenue Code. This means:
The effective maximum blended rate: ~26.8% for top-bracket taxpayers, plus the 3.8% Net Investment Income Tax (NIIT). Compare this to the 37% ordinary income rate — Section 1256 saves high earners roughly 10 percentage points.
Section 1256 contracts are marked to market on December 31. If you hold an open position at year end, you're treated as if you sold it at fair market value on the last business day of the year. Any unrealized gain or loss is recognized for that tax year.
This means you can't defer gains by holding positions across tax years.
Section 1256 has a benefit no other capital asset offers: 3-year loss carryback. If you have net Section 1256 losses in 2026, you can carry them back to offset Section 1256 gains in 2023, 2024, or 2025 — potentially generating a tax refund.
This is filed on Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles).
Kalshi issues Form 1099-B to US users, reporting proceeds from contract settlements. The IRS receives a copy. This means your trading activity is on record — report it accurately.
Polymarket is not CFTC-registered. It operates offshore and uses blockchain-based settlement (conditional tokens on Polygon, settled in USDC). This creates a fundamentally different — and more complex — tax situation.
Polymarket uses ERC-1155 conditional tokens. Under IRS Notice 2014-21 and the 2021 Infrastructure Investment and Jobs Act, every crypto-to-crypto swap is a taxable disposition. In practice:
Your cost basis for outcome shares equals the USDC spent (valued at fair market value in USD at the time of purchase). Your proceeds equal the USDC received on sale or redemption.
The IRS has not issued guidance specifically classifying prediction market winnings. Your Polymarket income could be treated as:
| Classification | Tax Rate | Loss Treatment | Best For |
|---|---|---|---|
| Capital gains | Up to 37% short-term, 20% long-term | $3,000/year deduction against ordinary income, unlimited carryforward | Occasional traders |
| Ordinary income | Up to 37% | Fully deductible as ordinary losses | Active traders |
| Gambling income | Up to 37% | Deductible ONLY against gambling winnings, must itemize | Worst case scenario |
The gambling classification is the least favorable — you can only deduct gambling losses against gambling winnings (IRC Section 165(d)), and you must itemize deductions on Schedule A to claim them. With the standard deduction at approximately $15,000 (single) / $30,000 (married filing jointly) for 2026, many taxpayers won't benefit from itemizing.
Polymarket does not issue 1099 forms to US users. You must self-report all transactions. The IRS doesn't receive third-party reports of your Polymarket activity — but that doesn't reduce your reporting obligation.
Follow these steps to accurately calculate and report your prediction market gains and losses.
For each trade, record:
Gain/Loss = Proceeds − Cost Basis − Fees
Example: You buy 100 YES shares on "Will X happen?" at $0.35 each ($35.00 cost basis). The event resolves YES. You receive $100 in USDC. Your gain: $100 - $35 = $65.
Example: You buy 200 NO shares at $0.60 each ($120 cost basis). The event resolves YES, your shares expire worthless. Your loss: $0 - $120 = -$120.
Yes — but how much depends on the classification.
The wash sale rule disallows a loss deduction if you sell at a loss and buy a "substantially identical" security within 30 days before or after the sale.
Kalshi: Section 1256 contracts are generally not subject to wash sale rules. They fall under the straddle rules (IRC Sections 1092 and 263(g)) instead.
Polymarket: As of January 1, 2025, wash sale rules have been extended to digital assets. This means selling a YES position at a loss and buying another YES position on the same event within 30 days could trigger the wash sale rule. Positions on different events are almost certainly not "substantially identical."
Polymarket users may have additional filing obligations because the platform is foreign-based.
If your Polymarket account (or associated wallets) held an aggregate value exceeding $10,000 at any point during the year, you may need to file an FBAR. The definition of "foreign financial account" for crypto-native platforms is debated, but conservative practitioners recommend filing.
Penalties for non-filing: Up to $16,117 per violation (non-willful), or the greater of $100,000 or 50% of the account balance (willful).
Filing deadline: April 15 (automatic extension to October 15).
If your specified foreign financial assets exceed $50,000 on the last day of the tax year or $75,000 at any time (single filers, domestic), you must file Form 8938 with your tax return.
Kalshi users: Kalshi is US-based. No FBAR or FATCA filing required.
Robinhood launched prediction markets (event contracts) in 2024. Tax treatment is straightforward — identical to Kalshi.
If you trade prediction markets on both Robinhood and Kalshi, all contracts go on the same Form 6781.
You earned $10,000 in net profits on Kalshi in 2026. You're in the 24% tax bracket (taxable income $100,525–$191,950 for single filers).
Section 1256 saves you $540 on $10,000 in profits. At higher income brackets (37%), the savings grow to ~$1,020 per $10,000.
Most states with income tax conform to federal treatment — your federal classification flows through to your state return. Key exceptions and notes:
| State | Notes |
|---|---|
| Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming | No state income tax — prediction market profits not taxed at state level |
| New Hampshire | No income tax (phasing out interest/dividends tax) |
| Washington | No income tax BUT 7% capital gains tax on gains over $270,000 |
| California | Does NOT conform to Section 1256 — all gains taxed at ordinary rates (up to 13.3%). Kalshi's 60/40 benefit does not apply on your CA return |
| New York City | City tax up to 3.876% on top of NY state (up to 10.9%). Total can exceed 50% with federal |
| Connecticut | Does not allow gambling loss deductions even if federal return allows them |
Maintain these records for at least 3 years from your filing date (6 years if more than 25% of gross income is omitted):
This guide is for informational purposes only and does not constitute tax advice. Tax laws are complex and your situation may differ. Consult a qualified tax professional for advice specific to your circumstances.