How prediction market winnings are taxed
Tax rules for prediction market trading are unsettled in most of the world, but the United States has the clearest available guidance. Traders on any platform should treat their winnings as taxable income until and unless a tax authority in their jurisdiction says otherwise.
How prediction market winnings are taxed
US tax treatment
Kalshi issues 1099-MISC forms to US traders who receive $600 or more in a calendar year. The IRS has not published specific guidance for event contracts, but the general rule is that winnings are ordinary income in the year received. Trading losses may be deductible as ordinary losses to the extent they offset gains, but the wash-sale rule does not apply to these instruments the way it does to securities. Traders should keep detailed records of every trade, including cost basis, resolution date, and net profit or loss per market. Consult a tax professional before filing; this is a new and evolving area.
EU and UK situation
No EU member state or the UK has published specific guidance on prediction market contracts as of early 2026. Most practitioners treat winnings either as miscellaneous income or as capital gains, depending on whether the trading activity resembles investing or gambling under local rules. Some jurisdictions treat gambling winnings as non-taxable (notably the UK for most individuals) but may not classify prediction market contracts as gambling. Local tax counsel is essential for traders with material positions.
Crypto complications
Polymarket pays out in USDC on the Polygon blockchain. Depending on your jurisdiction, receiving USDC may be a taxable event, converting USDC to USD may trigger another taxable event, and any appreciation in the USDC value between receipt and conversion may generate a reportable gain. In the US, the IRS treats cryptocurrency as property, so each conversion is a potential capital gain or loss event. Traders using Polymarket need to track not just market outcomes but also the USD value of USDC at each receipt and disposal.
Record-keeping
Every serious prediction market trader should export a full trade history from each platform at least annually. Kalshi and Polymarket both offer CSV exports. Track: the market slug or question, your entry price and quantity, the resolution outcome, the payout received, and the date of each action. This data is necessary both for accurate tax filings and for analyzing your own trading performance. Cloud-backup your exports; platform histories are sometimes lost when venues close or restructure.
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