Prediction Markets vs. Sportsbooks: How the Taxes Differ

A sportsbook treats your bets as gambling: it sends a W-2G on big wins and can withhold 24%. Kalshi and Polymarket send no form for your trading profit and withhold nothing, and the IRS hasn’t said whether those trades are gambling at all. That one difference changes how losses work, whether the 60/40 rule is possible, and whether a bad year on one can soften a good year on the other.

Side by side

Forms and withholding

A sportsbook is a gambling payer under the tax rules. For payments in 2026, it sends a W-2G when a sports win is at least $2,000 and at least 300 times your stake, and it withholds 24% when the win minus the stake is more than $5,000 on a bet that pays 300 times. Sports betting taxes, in full.

Kalshi and Polymarket aren’t treated as gambling payers today. Kalshi sends forms for interest and rewards, not for your trades, and polymarket.com sends nothing. What Kalshi does send. Either way, every win is taxable whether a form arrives or not.

How losses work

Sportsbook losses are gambling losses: they only count if you itemize, only against gambling winnings, and from 2026 only 90% of them. Prediction market losses follow the method you pick. Under capital gains they offset gains and up to $3,000 of other income a year, with the rest carried forward. Losses, method by method.

Do they offset each other?

It depends on how you report your prediction market trades.

• Kalshi as gambling: your trades and your sportsbook bets are all wagering, so a loss on either can count against winnings on either, as a gambling loss on Schedule A. You still have to itemize, and only 90% of losses count from 2026.
• Kalshi as capital gains: a net Kalshi loss can reduce your other income, sportsbook winnings included, by up to $3,000 a year. Sportsbook losses can’t reduce Kalshi capital gains, because gambling losses only offset gambling winnings.
• Kalshi under Section 1256: same $3,000 limit against other income, with the option to carry a net loss back three years against past 60/40 gains.

You can’t mix and match by trade. Pick one method for your prediction market trades for the year. The four methods.

Records to keep

• Each sportsbook’s win/loss statement and any W-2Gs.
• Your Kalshi exports or Polymarket wallet history, since no form shows your trading result.
• A note of which method you used for prediction markets, so next year matches.

WagerMints prices your Kalshi or Polymarket year four ways, so you can see which method leaves room for your sportsbook losses and which doesn’t. The 2026 gambling loss calculator does the sportsbook side.