Prediction Market Taxes
in the United States
Prediction market profits are taxed as ordinary income in the US: up to 37% federally plus state taxes. Platforms like Kalshi issue 1099-MISC forms. This guide covers everything: what you owe, what you can deduct, the OBBBA sports rule, and state-by-state rates.
How prediction market profits are taxed
Up to 37% federal rate
Prediction market winnings are taxed as ordinary income (miscellaneous income) in the US. Platforms like Kalshi and PredictIt issue 1099-MISC forms. Even if event contracts were ever reclassified as capital gains, they'd typically still be short-term (held under a year), which means ordinary income rates apply regardless.
$3,000 per year cap + carryforward
If you have net losses on prediction markets, you can deduct up to $3,000 per year against other income. Losses above $3,000 are carried forward to future years. A trader with $10,000 in net losses deducts $3,000 this year and carries $7,000 forward.
Kalshi, PredictIt report net profits
CFTC-regulated platforms issue annual 1099-MISC forms to US users with net profits. The 1099 reports your net trading income (wins minus losses across all resolved contracts in the calendar year). You receive this by January 31 of the following year.
No 1099 from Polymarket or Drift Bet
On-chain platforms like Polymarket and Drift Bet do not issue 1099s. US users must self-report their gains on both federal and state returns. The IRS has made clear that cryptocurrency-based activity is taxable; on-chain prediction market profits are no exception.
2026 federal income tax brackets (ordinary income)
Prediction market profits are added to your total ordinary income. Your effective tax rate depends on your overall income level.
| Income range (single) | Marginal federal rate | On $10K of trading profits |
|---|---|---|
| Up to $11,600 | 10% | ~$1,160 |
| $11,601 – $47,150 | 12% | ~$1,200 |
| $47,151 – $100,525 | 22% | ~$2,200 |
| $100,526 – $191,950 | 24% | ~$2,400 |
| $191,951 – $243,725 | 32% | ~$3,200 |
| $243,726 – $609,350 | 35% | ~$3,500 |
| Over $609,350 | 37% | ~$3,700 |
Marginal rates apply only to income in that bracket. Trading profits are stacked on top of your other income. If you earn $200,000 in salary, your prediction market profits are taxed starting at the 32% bracket. Brackets approximate 2026 inflation adjustments.
The OBBBA sports betting loss cap
Sports betting losses now only 90% deductible
The One Big Beautiful Bill Act (OBBBA), signed by President Trump on July 4, 2025, limits the deductibility of sports betting losses to 90% of losses starting in tax year 2026. The remaining 10% is permanently non-deductible and cannot be carried forward.
You trade Kalshi sports event contracts in 2026. You win $5,000 but lose $8,000: a net loss of $3,000. Under the OBBBA:
• The $3,000 net loss passes through to the general $3,000/year cap
• But the gross loss pool used to calculate this net amount is limited to 90% deductibility
• The exact interaction with the general investment loss rules is being clarified by IRS guidance
• Consult a CPA who follows the OBBBA implementation guidance for definitive treatment.
The OBBBA applies to "sports wagering": whether Kalshi sports event contracts qualify as "sports wagering" for this purpose depends on IRS guidance not yet issued as of May 2026. Watch for IRS Notice updates.
State income tax rates on prediction market profits
Most states tax prediction market profits as ordinary income at state rates. Nine states have no income tax at all.
| State | State tax rate | Notes |
|---|---|---|
| California (CA) | Up to 13.3% | Highest in US; additional 1% mental health surcharge on income >$1M |
| New York (NY) | Up to 10.9% + 3.876% NYC | NYC residents face combined state + city rate above 14% |
| New Jersey (NJ) | Up to 10.75% | Prediction market trading restricted (sports contracts blocked) |
| Oregon (OR) | Up to 9.9% | No sales tax but high income tax |
| Minnesota (MN) | Up to 9.85% | Proposal to extend to e-sports/event contract winnings under review |
| Illinois (IL) | 4.95% flat | Flat rate applies to all income levels; May 2026 executive order |
| Florida (FL) | None | No state income tax: federal only |
| Texas (TX) | None | No state income tax: federal only |
| Nevada (NV) | None | No state income tax; gambling capital of the US |
| Washington (WA) | None on income | No income tax but Manifold restricts real-money features in WA |
See the full state-by-state guide for all 51 jurisdictions.
Does your platform issue a 1099?
| Platform | 1099 issued? | Reporting method |
|---|---|---|
| Kalshi | ✅ Yes | 1099-MISC (net profits as misc. income) |
| PredictIt | ✅ Yes | 1099-MISC (net profits) |
| Iowa Electronic Markets | ✅ Yes | 1099-MISC (net profits; $500 account cap limits scale) |
| Robinhood (event contracts) | ✅ Yes | 1099 via Robinhood brokerage (may be on 1099-B or 1099-MISC) |
| Interactive Brokers (ForecastEx) | ✅ Yes | 1099 via IBKR brokerage account |
| Webull (Kalshi-powered) | ✅ Yes | 1099 via Webull brokerage account |
| Polymarket | ❌ No | Self-report required — on-chain USDC activity |
| Manifold (sweepstakes cash) | ⚠️ Maybe | Sweepstakes prizes over reporting thresholds may trigger 1099 |
| Drift Bet | ❌ No | Self-report required — on-chain Solana activity |
| Coinbase (event contracts) | ⚠️ Check | Coinbase may issue 1099 for on-platform activity |
Tax planning for prediction market traders
Track every trade throughout the year
Don't wait for your 1099. Keep a running spreadsheet of resolved contracts: date, amount invested, payout received, and net gain/loss. This lets you verify your 1099, identify tax-loss harvesting opportunities, and prepare if you trade on platforms that don't send 1099s.
Realise losses strategically before year-end
If you hold contracts that are near zero in December, consider whether resolving them before year-end (or selling at a loss on the secondary market) maximises your $3,000 annual loss deduction. Carryforward losses are less valuable than current-year deductions if your tax rate will be similar or lower next year.
Self-directed IRAs can hold event contracts
Some self-directed IRA custodians may allow CFTC-regulated event contracts. Profits inside a traditional IRA defer tax; profits inside a Roth IRA are tax-free on qualified distributions. This is an advanced strategy: consult a tax professional and custodian before attempting.
High earners in CA/NY pay 50%+ combined
At the top federal bracket (37%) plus California's 13.3% state rate, a California trader keeps less than half of prediction market profits. Texas, Florida, and Nevada residents pay federal rates only. If you're a high earner and geographically flexible, state of residence significantly affects after-tax returns.
Common tax questions
Are prediction market winnings taxed as capital gains or ordinary income? +
Ordinary income. Platforms like Kalshi issue 1099-MISC forms. Even if reclassified as capital gains, contracts are typically held short-term (under 1 year), meaning ordinary income rates apply regardless.
Does Kalshi send a 1099? +
Yes: Kalshi issues 1099-MISC forms for US users with net profits each calendar year. You receive it by January 31 of the following year.
Can I deduct prediction market losses? +
Yes, up to $3,000 net per year. Excess losses carry forward. Sports event contract losses may be subject to the OBBBA 90% cap starting 2026: consult a tax professional.
What is the OBBBA sports betting loss cap? +
The One Big Beautiful Bill Act (signed July 4, 2025) caps sports betting loss deductibility at 90% starting 2026. Whether Kalshi sports event contracts qualify as "sports wagering" under this rule is pending IRS guidance.
Do I owe state taxes on prediction market winnings? +
In most states with income taxes, yes. Florida, Texas, Nevada, and six other states have no income tax. California (13.3%) and New York City (combined 14.8%) have the highest combined rates.
What if I don't receive a 1099? +
You're still legally required to report all income. Decentralized platforms (Polymarket, Drift Bet) don't issue 1099s: self-report required. The IRS considers on-chain gains taxable even without a form.
More resources
State-by-state tax rates
Every US state's prediction market legal status, platform availability, and state tax rate.
StrategyTrading strategy guide
Kelly Criterion, finding edge, and managing risk after taxes.
RegulationCFTC regulation explained
How CFTC licences work and what they mean for US traders.
ToolKelly Criterion calculator
Optimal bet sizing: the foundation of bankroll management.