Prediction Market Taxes: How Winnings Get Taxed (and Why It’s Still Unclear)
- No 1099 does not erase your reporting duty.
- Gross payout is not automatically taxable gain.
- Track cost basis, proceeds, and fees.
- Platform paperwork does not determine classificati
Last updated 9/2/2026
Prediction-market gains are taxable in 2026, whether you used Kalshi, Polymarket, Robinhood, or another platform. The open question is how the IRS should classify a specific contract for federal tax purposes.
Prediction-market gains are taxable even if no 1099 is issued. The key question is how the activity is classified since tax treatment depends on the contract. This can fall under capital-asset, Section 1256, or gambling rules.
Table of contents
- 1.Are Prediction Market Winnings Taxable in 2026?
- 2.Why Is There No Single IRS Rule for This Yet?
- 3.The Three Ways Your Gains Might Be Classified
- 4.Will You Get a 1099 from Kalshi, Polymarket, or Robinhood?
- 5.How Do State Taxes Factor In?
- 6.What Happens to Your Losses?
- 7.How Should You Actually Track and Report This?
Are Prediction Market Winnings Taxable in 2026?
Yes. Prediction-market winnings are taxable income in 2026. The unresolved question is which federal tax framework applies to a particular contract, not whether the income must be reported. The IRS says you should report taxable income even when you do not receive an information form. For event contracts, keep what you paid separate from what you received at sale or settlement.
Why Is There No Single IRS Rule for This Yet?
Current IRS materials explain the existing capital-asset, Section 1256, and wagering rules but do not provide a specific classification for every prediction-market event contract. Robinhood also states that the IRS has not issued specific tax guidance for event-contract trading. As a result, tax professionals may analyze the existing rules by analogy, and the answer can depend on the legal structure of the contract.
The Three Ways Your Gains Might Be Classified
The same profit can produce different forms and loss rules depending on its classification. Those tax mechanics are established. Which framework applies to a specific event contract is not.
Possible Property/Capital-Asset Treatment
If the contract is a capital asset held for up to a year, the gain or loss is usually short-term. A loss can offset capital gains. If losses are still left over, up to $3,000 may reduce other income, with the rest generally carried forward.
Possible Section 1256 Treatment
If Section 1256 applies, report gain or loss on Form 6781. In most cases, 60% is treated as long-term and 40% short-term. This is regardless of how long you owned the contract. Not every contract qualifies, though. It must meet the legal definition of a Section 1256 contract.
Possible Gambling/Wagering Treatment
If treated as wagering, winnings are generally reported as other income. Starting in 2026, deductible gambling losses are limited to 90% of losses and cannot exceed winnings. Most nonprofessional taxpayers must itemize to claim them. These are competing legal interpretations; taxpayers cannot choose between options.
Will You Get a 1099 from Kalshi, Polymarket, or Robinhood?
Tax documents vary by prediction-market platform and type of activity, and no single form covers every prediction-market trade.
Robinhood: Does not send a 1099 for event-contract trades or report those trades to the IRS. Instead, it provides an annual statement with your trades, fees, and overall profit or loss.
Kalshi: May issue several tax forms depending on your activity. These include Form 1099-INT for certain interest, 1099-MISC for qualifying rewards, and forms related to digital-asset transactions. Your profit-and-loss statement is different. It summarizes trading results, including gains, losses, and fees. It doesn’t necessarily replace a full 1099-B for every event-contract trade.
Polymarket US: Its current individual participant agreement says users consent to electronic delivery of tax forms, including Form 1099-B. However, the agreement does not promise that every trade will generate that form. Do not automatically apply the Polymarket US statement to the separate on-chain Polymarket product.
No form in your inbox? You still have to report taxable income and maintain records of your cost basis, proceeds, fees, and trades. Platform paperwork alone does not determine the tax classification.
How Do State Taxes Factor In?
State income-tax treatment is separate from federal classification. States may begin with information from the federal return, but their deductions and treatment of investment or wagering losses can differ. The result therefore depends on the state return you file.
Prediction-market regulation is a separate state issue. As of August 2026, the CFTC says it is involved in litigation with several states over whether state gambling laws can restrict event contracts traded on federally regulated exchanges. These disputes do not create one nationwide state-tax rule.
Before filing, check your state’s latest tax rules or ask a CPA how it handles this income and any losses.
What Happens to Your Losses?
The deduction available for a loss depends on how the contract is classified. In general, capital treatment gives losses the most flexibility, while gambling treatment is the most restrictive.
Three Possible Loss Paths
1.
Capital treatment
Capital losses may offset capital gains. Excess net losses may be subject to the annual deduction limit and carryforward rules.
2.
Section 1256 treatment
Qualifying contracts follow Form 6781 rules, which can include mark-to-market and special straddle treatment.
3.
Gambling treatment
Under the 2026 rule, deductible wagering losses are limited to 90% of losses and cannot exceed wagering gains. Nonprofessional taxpayers generally must itemize to claim them.
Trading both sides of an event? Offsetting positions, straddles, and mixed treatment across platforms can complicate the return quickly.
How Should You Actually Track and Report This?
Build a complete trade record even if no tax form arrives.
Keep These Records
- Export every trade from every platform.
- Track the platform, contract, quantity, dates, cost basis, proceeds, and fees.
- Save annual statements, profit-and-loss reports, plus tax forms on file.
- Keep the method used to calculate each gain or loss.
- Reconcile the annual platform totals with the individual trade history.
- Bring the records to a CPA if you used multiple platforms, traded both sides, or had meaningful volume.
This article is for general information, not individualized tax advice. Before you file, ask a CPA or qualified tax professional how your own prediction-market contracts should be classified and reported.
FAQ
Do you have to pay taxes on prediction market winnings?
Yes. Prediction market gains are taxable even if you don’t receive a tax form. The harder question is which tax rules apply to the contract.
How are Kalshi winnings taxed?
There isn’t one settled tax treatment for every Kalshi contract. Depending on the contract, capital-asset, Section 1256, or wagering rules may apply.
Do you get a 1099 from Polymarket or Kalshi?
Not always. Tax forms depend on the platform and your activity, so keep your own trade records even when no 1099 arrives.
Are prediction markets taxed like gambling or like investments?
They can potentially fall under either framework, or under Section 1256 rules. The contract itself determines which treatment applies.
Can you deduct prediction market losses?
Possibly. The deduction depends on how the contract is classified, and wagering losses face tighter limits than capital losses.
Do prediction market platforms report your winnings to the IRS?
It depends on the platform and activity. A platform may send certain tax information without providing a complete record of every event-contract trade.
Is prediction market income taxed differently by state?
It can be. State tax rules vary, so your state return may treat the income or related losses differently from your federal return.
Meet the Author
Sports Betting Writer
Jasper George writes about U.S. sports betting, legal sportsbooks, betting apps, bonuses, and responsible betting. He breaks down betting in plain English so readers can compare their options with more confidence. When he’s not writing, Jasper composes music, explores new places, and spends as much time as possible on his bike.
