Prediction Markets Taxes: How to Report Your Winnings

Prediction markets have exploded in popularity over the past few years, and with real money now flowing through platforms like Kalshi and Polymarket, the question of taxes is no longer something you can afford to ignore. Whether you turned a profit trading on election outcomes, sports results, or economic events, the IRS has an opinion on what you owe — and it's not "nothing." I've dug into the rules so you don't have to navigate the confusion alone.

The short answer is that profits from prediction market contracts are taxable income in the United States. But the longer answer — the one that actually helps you stay compliant and avoid surprises — involves understanding how different platforms are classified, which forms you'll receive, and how your net gains get reported. At Winners & Whiners, we cover the full landscape of prediction markets, and tax treatment is one of the most important (and most overlooked) parts of participating in these markets responsibly.

This guide is specifically for U.S.-based participants who have earned profits through prediction markets in 2025 or 2026. It is not a substitute for advice from a licensed tax professional — more on that below — but it will give you a clear, practical framework for understanding your obligations before you sit down with your accountant or fire up your tax software.

Prediction Markets Taxes: What the IRS Actually Sees

Before we get into forms and filing, it helps to understand how the prediction markets space fits together from a tax and regulatory standpoint. The platforms you use aren't all built the same way, and those structural differences affect how your profits get classified. For a broader look at how these platforms compare to traditional sports markets, check out our breakdown of Prediction Markets vs Sports Betting: Which Is Better? — it's essential context for understanding why the tax treatment can differ. If you're still building your approach to these markets, our guide on How to Win at Prediction Markets: Strategies That Work covers the fundamentals, and for sport-specific opportunities, our Best Prediction Markets for Sports in 2026 roundup is the place to start.

From a regulatory standpoint, Kalshi is the most straightforward case: it's a CFTC-regulated designated contract market, meaning your trades are treated as regulated futures contracts under U.S. law. Polymarket, by contrast, operates on blockchain infrastructure and is not currently available to U.S. users in its standard form. That distinction matters enormously for how gains get classified and reported, which we'll break down in detail below.

How Prediction Market Profits Are Classified

The IRS doesn't have a prediction-market-specific tax category — at least not yet. Instead, your profits fall into one of a few existing buckets depending on which platform you used and how the contracts are structured. Getting this classification right is the foundation of an accurate tax return.

Kalshi: Section 1256 Contracts

Because Kalshi is a CFTC-regulated exchange, contracts traded there are generally treated as Section 1256 contracts under the Internal Revenue Code. This is actually a favorable classification for many participants. Section 1256 contracts are taxed using a 60/40 rule: 60% of your net gains are treated as long-term capital gains (regardless of how long you held the position) and 40% are treated as short-term capital gains. This blended rate is often lower than the ordinary income rate that applies to other types of short-term trading profits. You'll report these on IRS Form 6781.

Other Platforms and Crypto-Based Markets

For prediction markets that operate outside the CFTC-regulated framework — including any crypto-based platforms — the classification is less settled. Profits may be treated as ordinary income, as capital gains, or potentially as self-employment income depending on the frequency and nature of your activity. If you're participating in crypto-native prediction markets, you also have the added complexity of crypto-to-crypto transactions, each of which can be a taxable event in itself. Consulting a tax professional with crypto experience is strongly recommended in these cases.

Which Tax Forms to Expect

The forms you receive — or don't receive — depend on the platform and the size of your winnings. Don't make the mistake of assuming that because you didn't get a form, you don't owe anything. The IRS expects you to self-report income even when no 1099 arrives.

Form 1099-B

Kalshi and other regulated futures platforms will typically issue a Form 1099-B to participants who have reportable transactions. This form summarizes your proceeds and cost basis, which you then use to complete Form 6781 (for Section 1256 contracts) and Schedule D. Keep in mind that the 1099-B may not perfectly reflect your actual net gain if you had multiple trades — reconcile it against your own records.

Form 1099-MISC or 1099-NEC

Some platforms may issue a 1099-MISC or 1099-NEC if your winnings exceed certain thresholds and the platform classifies your payouts as prizes or other income rather than investment proceeds. Daily fantasy and contest-style platforms sometimes fall into this category. If you've also used platforms like daily fantasy sports sites, it's worth comparing how those winnings are handled — you can find sign-up offers for some of the major ones, including a PrizePicks promo code and an Underdog Fantasy promo code, through our reviews section, which also covers the tax implications of those platforms.

No Form Received

If a platform doesn't issue a tax document — which is common with newer or offshore-based services — you are still legally required to report your gains. The IRS's position is that all income is taxable unless a specific exemption applies. "I didn't get a form" is not a defense in an audit. Export your transaction history from the platform and calculate your net gains manually, or use crypto tax software if blockchain transactions are involved.

Record-Keeping: What You Need to Track

Good records are your best defense if the IRS ever questions your return, and they make accurate filing significantly easier. For every prediction market contract you purchase and resolve, you should document the date of the transaction, the contract description, the purchase price (cost basis), the amount received at resolution or sale, and the net gain or loss. Most regulated platforms make this reasonably easy through downloadable transaction histories. For blockchain-based platforms, dedicated crypto tax tools can automate much of the aggregation work.

One common mistake is tracking only winning contracts and forgetting to claim losses. Net losses on Section 1256 contracts can be carried back up to three years or carried forward, which can meaningfully reduce your tax bill in profitable years. Don't leave that on the table.

State Taxes on Prediction Market Winnings

Federal taxes are only part of the picture. Most states that have an income tax will also want a cut of your prediction market profits, and the rules vary significantly by state. A handful of states — including Florida, Texas, Nevada, and Washington — have no state income tax, which simplifies things considerably. Others, like California and New York, have high marginal rates and few special carve-outs for investment income. Check your state's department of revenue guidance or speak with a local tax professional to understand your specific obligations.

Reporting Prediction Markets Taxes Accurately

Filing accurately comes down to four steps: classifying your income correctly based on the platform and contract type, gathering all documentation including platform statements and transaction exports, completing the right federal forms (Form 6781 for Section 1256 contracts, Schedule D for capital gains, and the main Form 1040), and accounting for any state-level obligations. If your activity was frequent or involved large sums, working with a CPA or enrolled agent who has experience with derivatives or crypto taxation is genuinely worth the cost — the tax code in this area is nuanced enough that professional guidance often pays for itself.

It's also worth noting that this area of tax law is actively evolving. As prediction markets grow and regulators pay closer attention, IRS guidance specific to these platforms may become more formalized. Staying current with any new notices or rulings is part of responsible participation in these markets.

Frequently Asked Questions: Prediction Markets Taxes