How Prediction Market Winnings Are Taxed
Money you make trading event contracts is taxable income. What is not settled is which kind of income it is. As of July 2026 the IRS has issued no revenue ruling, notice, private letter ruling, or FAQ that says how CFTC-regulated prediction-market contracts should be classified, and tax professionals are openly arguing between at least four candidate treatments with materially different rates and loss rules.
That gap is the whole story of this page. It does not get you out of reporting anything: the obligation to report income exists whether or not a platform sends you a form. It does mean the classification question deserves a conversation with an actual tax professional rather than a confident answer from a gambling site.
This page is information, not tax advice
We describe what practitioners are debating and what the platforms currently do. We do not recommend a filing position, and nothing here is a substitute for advice from a qualified tax professional who knows your situation.
Are Prediction Market Winnings Taxable?
Yes. Every practitioner writing on this subject agrees on that much, whatever they think about classification. Realized gains from trading event contracts are income, and US taxpayers are required to report income whether or not a third party documents it for them.
The absence of a form is the trap worth naming. Some platforms issue tax documents, some issue statements that explicitly are not tax documents, and some issue nothing at all. None of those outcomes changes what you owe. They change only how much work you have to do to figure it out, which is why the records section below matters more here than it would for a brokerage account.
The Question Nobody Has Answered Yet
Four treatments are in play, and they are not close to equivalent in what they cost you:
- Section 1256 contracts (the 60/40 rule): gains split 60 percent long-term and 40 percent short-term regardless of how long you held the position. Generally the most favorable outcome, and the most contested.
- Ordinary capital gains: short-term or long-term by holding period, which for contracts resolving in weeks usually means short-term rates.
- Gambling income: winnings reported as other income, with losses deductible only against winnings and only if you itemize. Often the least favorable treatment.
- Ordinary income: taxed at your marginal rate with no preferential treatment at all.
Which one applies is not something you get to simply choose, and it is not something a platform decides for you either. It turns on how the instrument is characterized under existing law, which is exactly the question no authority has resolved for these contracts.
Why Section 1256 Is the Contested One
The argument for Section 1256 is straightforward on its face: these are contracts traded on exchanges designated by the CFTC, and Section 1256 covers regulated futures contracts on qualified boards of trade. If event contracts fit that definition, the 60/40 split follows automatically.
The argument against is that the section was written for a specific universe of instruments, and that stretching it to cover binary event contracts is an interpretation rather than a settled reading. Practitioners writing publicly on this describe claiming 60/40 treatment for prediction-market contracts as an aggressive position: defensible enough to argue, but not something the IRS has blessed, and therefore something that carries examination risk if you are wrong.
Our reading of the public commentary is that reasonable professionals currently disagree, which is a genuinely unusual state of affairs and a good reason to get advice specific to your numbers rather than adopting the treatment that sounds best.
Which Platforms Send Tax Forms
Practice varies by venue, and it is worth knowing before tax season rather than during it.
- Kalshi reportedly issues 1099 forms for qualifying activity, including a 1099-B for realized proceeds, a 1099-MISC for referral rewards, and a 1099-INT for interest.
- Polymarket US has a less publicly documented form-issuance policy; check your account’s tax section directly rather than assuming.
- Robinhood provides an event-contracts annual statement that the company itself says is not a substitute for a tax form.
- Non-US or on-chain venues commonly provide no US tax documentation whatsoever.
Notice what that list implies: a trader active on two venues can easily end up with a 1099 covering part of their year and nothing covering the rest, while owing tax on all of it.
What Happens to Losing Trades
Loss treatment is where the classification question stops being academic. Under capital treatment, losses offset gains and a limited amount of ordinary income, with the remainder carrying forward to future years. Under gambling treatment, losses are deductible only against winnings and only if you itemize, which the IRS sets out for gambling income, and any excess simply disappears. Under Section 1256, positions are generally marked to market at year end, which changes both the timing and the character of what you report.
A trader who finished the year down can therefore owe very different amounts depending on which framework applies to the identical set of trades. That is not a loophole to shop for; it is a reason to have someone qualified look at your specific situation before you file.
Timing and Estimated Payments
Tax is generally owed for the year in which a gain is realized, not the year you withdraw the money to your bank. Traders sometimes assume that leaving profits sitting in a platform balance defers the liability. It does not, under any of the candidate treatments.
If your trading produces meaningful gains and no one is withholding tax on your behalf, quarterly estimated payments may come into play. This is another place where the answer depends on your total tax picture rather than on anything specific to prediction markets, and where a professional earns their fee.
The Records Worth Keeping
Because platform documentation is inconsistent and the classification question is open, contemporaneous records are the thing that protects you. Keep them as you go rather than reconstructing them in April.
- Every deposit and withdrawal, with dates and amounts
- Each position: what you bought, at what price, how many contracts, and when
- How each position ended, whether sold before settlement or settled at $1 or $0
- Fees paid on each trade, since they affect your net either way
- Any platform statements or 1099s as they arrive, saved rather than skimmed
A plain spreadsheet is enough. The point is that if your platform’s reporting turns out to be thin, or your professional recommends a treatment that needs position-level detail, you have the underlying data rather than a year-end number you cannot decompose.
The State Layer
State taxation adds its own uncertainty on top of the federal question. States generally tax income their residents earn, and prediction-market gains are income, so the practical answer in most places is that they are taxable at the state level too, under whatever category your state’s rules assign them.
There is also a live policy fight in the background: because these venues are federally regulated rather than state-licensed, they do not pay the state gambling taxes sportsbooks pay, which is one of the reasons several states have moved against them. Our state-by-state legality tracker covers where that fight stands, though the legality of trading and the taxability of your gains are separate questions with separate answers.
Prediction Market Taxes FAQ
What readers ask about event contracts and taxes, answered descriptively.
Do I owe tax on prediction market winnings?
Yes. Realized gains are taxable income in the US. The unsettled part is which category the income falls into, not whether it counts.
What if the platform never sends me a tax form?
You still report the income. Form issuance varies by venue, and some issue nothing at all, but the reporting obligation sits with the taxpayer regardless. That is exactly why keeping your own trade records matters.
Are event contracts Section 1256 contracts?
Nobody can tell you definitively. The argument is that they trade on CFTC-designated exchanges, which is the kind of venue Section 1256 contemplates. The counterargument is that applying it to binary event contracts is an interpretation the IRS has never confirmed, and practitioners describe claiming it as an aggressive position. Ask a professional about your own return.
Can I deduct my losing trades?
It depends entirely on which classification applies, which is the open question. Capital treatment and gambling treatment handle losses very differently, and the difference can be large. This is the single best reason to get advice rather than guess.
Has the IRS said anything at all?
Not specifically. As of July 2026 there is no revenue ruling, notice, private letter ruling, or FAQ addressing prediction-market event contracts directly, which is why the professional commentary reads the way it does.
Does it matter which state I live in?
For your own taxes, your state’s income rules apply on top of the federal treatment. Separately, the fact that these venues pay no state gambling tax is part of why some states are challenging them, but that is a fight between regulators and platforms rather than something that changes your filing.
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