Prediction Markets Tax Guide
Everything traders need to know about reporting winnings on Kalshi, Polymarket, FanDuel, and similar platforms.
Platforms covered
6+
IRS rule
All wins taxable
Loss cap
90% in 2026
Forms
1099 varies
Not tax advice. This guide is for educational purposes only. Tax laws are complex and your situation may differ. Consult a CPA or tax professional for advice specific to your circumstances.
Quick Answers
Are winnings taxable?
All prediction market income is taxable by the IRS.
Do I get a 1099?
Kalshi may issue one. Polymarket won't. FanDuel Predicts (CFTC/CME): unclear — W-2G may not apply; consult a CPA.
Gambling or investment?
Kalshi may qualify as derivatives. Others = gambling income.
The Basics
Are prediction market winnings taxable?
Yes — unambiguously. Prediction market winnings are taxable income under US law regardless of platform, size, or whether you receive a tax form. The IRS treats gambling winnings as ordinary income (Schedule 1). If Kalshi contracts qualify as Section 1256 instruments, different — and potentially more favorable — rules may apply. Either way, you owe taxes on net gains. When your contracts settle, that's the taxable event.
Gambling income vs. investment income — it matters
As a CFTC-regulated DCM + DCO (Designated Contract Market and Derivatives Clearing Organization), Kalshi operates under the same regulatory framework as futures exchanges like CME. Under current IRS guidance, Kalshi event contracts are generally treated as ordinary income — not as Section 1256 contracts. While Kalshi's DCM status has led some practitioners to explore 1256 (60/40 capital gains) treatment, the IRS has not confirmed this for binary event contracts. Most practitioners recommend reporting as ordinary income until formal guidance is issued.Consult a CPA familiar with derivatives.
Polymarket is CFTC-regulated through QCX LLC (d/b/a Polymarket US), approved November 25, 2025 and available to US residents. It uses USDC (cryptocurrency). Winnings may be treated as ordinary gambling income or Section 1256 contracts depending on IRS guidance. USDC winnings are taxable when converted to USD or used for purchases — the crypto wrapper doesn't change the tax obligation.
FanDuel Predicts (Flutter/FanDuel's prediction market product) partners with CME Group as its Designated Contract Market, putting it under CFTC oversight — not state sportsbook licensing. This means W-2G rules (the sportsbook standard) may not apply to FanDuel Predicts winnings. Tax treatment may parallel Kalshi (derivatives/Section 1256) rather than traditional gambling income. IRS guidance is pending; consult a CPA before filing. FanDuel sportsbook winnings (separate product) remain subject to W-2G rules.
Since Robinhood and Coinbase route through Kalshi's CFTC-regulated exchange, your event contract trades may follow Kalshi's tax treatment. Note: Robinhood does not issue a standard brokerage 1099 for event contracts — it provides an Event Contracts Annual Statement, which is not a tax reporting form. You are still responsible for self-reporting income. Coinbase tax treatment is unclear as of April 2026. Keep records from both the app and the underlying exchange.
DraftKings Predictions launched December 2025 via CME Group — the same infrastructure as FanDuel Predicts. Tax treatment likely parallels FanDuel's: CFTC-regulated event contracts, not standard sportsbook wagers. W-2G rules may not apply. DraftKings sportsbook winnings (separate product) follow standard gambling income rules.
Crypto.com Derivatives North America is a CFTC-regulated DCM that powers apps like OG Predictions and Fanatics Markets. Crypto.com issues standard crypto tax documents. If you trade through a CDNA-powered app, keep both the app's records and any Crypto.com-issued tax forms. The crypto/fiat hybrid nature may complicate reporting — consult a CPA familiar with both crypto and derivatives taxation.
Platform Tax Comparison
| Category | Kalshi | Polymarket | FanDuel / DraftKings | Robinhood / Coinbase | Crypto.com CDNA |
|---|---|---|---|---|---|
| US Regulated | ✅ CFTC DCM | ✅ CFTC DCM (PM US) | ✅ CFTC via CME | ✅ Via Kalshi DCM | ✅ CFTC DCM |
| Tax Form Issued | 1099-INT, 1099-MISC (NOT 1099-B for event contracts) | None | Unclear (see note) | Event Contracts Statement (not 1099) | Standard crypto tax docs |
| Self-Report Required | Yes | Yes | Yes | Yes | Yes |
| Federal Withholding | None | None | Unclear | None | None |
| Section 1256 Eligible | Not established — ordinary income is current standard | No | Not established | Not established | Unclear |
| Income Classification | Ordinary income (standard); 1256 not established | Gambling / ordinary | Unclear (CFTC/CME); consult CPA | Follows Kalshi treatment | Unclear (crypto + CFTC) |
How to Report — Step by Step
Track all wins and losses throughout the year
Don't wait until tax season. Export your trade history from each platform monthly. For Polymarket, save your wallet transaction history.
Determine which IRS form applies
Gambling income → Schedule 1 (Other Income). Kalshi event contracts → generally treated as ordinary income on Schedule 1 under current IRS guidance. Section 1256 treatment (Form 4797 / Schedule D) is not established for event contracts — only pursue with explicit CPA confirmation.
Net losses against gains on the right form
Gambling losses go on Schedule A (itemized deductions). For 2025 returns, losses are capped at 100% of gambling income. For 2026 activity (due to the OBBBA), gambling losses are capped at 90% of winnings, which means break-even traders may still owe tax on paper gains. Section 1256 losses have different (more favorable) netting rules.
Report on your return
File by April 15. If you had significant winnings (>$10K), consider making quarterly estimated payments to avoid underpayment penalties.
The Khamenei market ($54M) — a tax and legal cautionary tale
Khamenei died February 28, 2026. Kalshi's “Ali Khamenei out as Supreme Leader?” market had over $54M in volume — but Kalshi invoked a “death carveout” provision and settled at last traded price rather than paying YES at $1.00. A class action lawsuit (Risch v. KalshiEX LLC, 2:26-cv-02390) was filed in federal court on March 5, 2026. If you received a payout from this market, that amount is still taxable income — even if you believe you were owed more.
Frequently Asked Questions
6 common questions answered
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