Are prediction market winnings taxable?

Yes. Profits from Kalshi, Polymarket, Robinhood or any other prediction market are taxable income in the US, whether or not you receive a tax form. What is unsettled is how they are taxed: as capital gains, ordinary income, gambling, or Section 1256 contracts.

How are prediction markets taxed?

The IRS has not said. Traders and preparers use four treatments: capital gains on Form 8949, ordinary income on Schedule 1, gambling winnings and losses under Section 165(d), or the Section 1256 60/40 split on Form 6781. They can produce very different bills on the same trades.

Does Kalshi send a 1099 for trading profits?

No. Kalshi's help center lists a 1099-INT for interest, a 1099-MISC for credits and rewards, and 1099-B or 1099-DA forms for crypto deposits and withdrawals. None reports your event-contract trading profit or loss, so you calculate it from your own trade history.

Can I deduct prediction market losses?

Usually, but how much depends on the treatment. As capital or Section 1256 losses, a net loss offsets other gains plus up to $3,000 of other income a year, with the rest carried forward. As gambling losses, they only offset gambling winnings, only if you itemize, and from 2026 only 90% of them count.

The complete guide

Prediction market taxes, explained

Yes, your Kalshi and Polymarket profits are taxable. The hard part is that nobody official has said how, so the same year of trades can be reported four different ways, with bills thousands of dollars apart. This guide walks through all four, in plain English, with the numbers.

Last reviewed October 24, 2026

The short answer

It is taxable. A profit is income whether or not a form arrives. No 1099 does not mean no tax.
The IRS has issued no guidance on event contracts: no notice, ruling, regulation or form instruction.
So there are four defensible ways to report it: capital gains, ordinary income, gambling, or Section 1256. Each has real support and real weaknesses.
The choice matters. On the example year below, the same $20,000 profit costs anywhere from $3,720 to $14,400 in federal tax.

Why nobody can give you one answer

A prediction-market contract pays a fixed amount if something happens and nothing if it doesn’t. That makes it look like three different things at once: a bet on an outcome, an investment you can buy and sell before it settles, and a derivative listed on a federally regulated exchange. The tax code treats each of those differently, and it was written long before Kalshi existed.

The regulators are no help on the tax question. In October 2026 the CFTC proposed formally defining event contracts as “swaps,” and in the same document said that federal tax treatment is determined by the Internal Revenue Code and the IRS, not by the CFTC. We cover what that proposal does to each method in our breakdown of the swap rule.

The four ways to report it

Method	How it works	Losses	Form
Capital gains	Each closed position is a sale. Almost everything is short-term, taxed at your normal rate.	Offset gains, then up to $3,000 a year of other income; the rest carries forward.	Form 8949, Schedule D
Ordinary income	Net profit added to your income like wages.	Netted against your gains for the year.	Schedule 1, line 8
Gambling	Total winnings are income. Wins and losses are tracked by session, not netted for the year.	Only against winnings, only if you itemize, and only 90% of them from 2026.	Schedule 1 line 8b, Schedule A
Section 1256	60% of the net gain taxed at long-term rates, 40% at short-term, however long you held.	Capital loss rules, plus an optional three-year carryback against past 1256 gains.	Form 6781, Schedule D

The guide to the four methods goes deeper on each, and the Section 1256 explainer covers the most contested one.

What each method costs: a winning year

Say your winning days add up to $60,000 and your losing days to $40,000, for a $20,000 net profit, all on contracts held under a year. You are in the 24% bracket, where long-term gains are taxed at 15%.

Method	Taxable	Federal tax
Section 1256	$12,000 at 15% + $8,000 at 24%	$3,720
Capital gains	$20,000 at 24%	$4,800
Ordinary income	$20,000 at 24%	$4,800
Gambling, itemizing	$60,000 winnings − $36,000 (90% of losses)	$5,760
Gambling, standard deduction	$60,000 winnings, no losses allowed	$14,400

Same trades, a $10,680 spread. That spread is the decision. Notice too that gambling treatment taxes you on $24,000 when you only made $20,000. That extra $4,000 is the phantom income from the 2026 loss cap.

Simplified on purpose: one flat bracket, federal income tax only, and it ignores the standard-versus-itemized trade-off, the 3.8% net investment income tax and state tax. Your real numbers depend on your whole return.

And a losing year

Now flip it: $30,000 of winning days, $40,000 of losing days, a $10,000 net loss.

Capital gains or Section 1256: you deduct $3,000 against your other income this year (about $720 back in the 24% bracket) and carry $7,000 forward. Under Section 1256 you may also elect to carry the loss back three years against earlier 1256 gains.
Gambling, itemizing: your losses wipe out your $30,000 of winnings, so you owe nothing on them, but the other $10,000 of losses is simply gone.
Gambling, standard deduction: you owe tax on $30,000 of winnings, about $7,200, in a year you lost $10,000.

The trap most people miss

If you treat your trading as gambling and take the standard deduction, which most people do, your losses count for nothing. You can owe real tax on a losing year.

What forms each platform sends

Platform	What you get	Reports your trading profit?
Kalshi	1099-INT (interest), 1099-MISC (credits and rewards), 1099-B or 1099-DA (crypto deposits and withdrawals only)	No
Polymarket (polymarket.com)	Nothing	No
Robinhood	An Event Contracts Annual Statement, which Robinhood says is not a tax form	No
Interactive Brokers (ForecastEx)	A consolidated 1099-B that includes event contracts	Yes

More on each: does Kalshi send a 1099 and the Robinhood statement. Because most platforms send no trading form, the IRS has no automatic copy of your profit. That is not a loophole. You still owe it, and you are the one who has to work it out.

Kalshi, Polymarket and Robinhood are not taxed identically

Kalshi is a CFTC-regulated exchange, which is the precondition for even arguing Section 1256. On Form 8949 its contracts go in box C (short-term) or F (long-term).
Polymarket (polymarket.com) runs on a blockchain and was never a CFTC-regulated exchange for US traders, so Section 1256 does not apply. Positions are digital assets: boxes I and L on Form 8949. Liquidity rewards and rebates are ordinary income, separate from your trades.
Polymarket US is a separate, CFTC-regulated exchange that opened in December 2025. It is treated like Kalshi, but only for trades made there.
Robinhood routes event contracts to regulated exchanges, so the treatment follows whichever exchange filled your order.

What changed for 2026

The 90% gambling loss cap. From tax year 2026 only 90% of gambling losses are deductible. The statute and the repeal effort, and a free calculator for your own numbers.
The 1099-MISC threshold rose to $2,000 for payments made in 2026, which changes when a platform has to send a form for rewards and credits.
The CFTC’s swap proposal made the Section 1256 argument harder, without deciding anything for tax.
States started taxing the platforms. North Carolina, Kentucky and Illinois passed levies on prediction-market operators. These hit the platform, not your return. State-by-state details.

What to do, step by step

Download your full history. Every trade, every settlement, every fee, for every platform you used.
Match each sale to its purchase. Fees go into your cost, and a payout is only profit after subtracting what you paid.
Price the year all four ways. Look at the spread before you decide anything.
Pick a method you can defend, ideally with a preparer. If you go with Section 1256, consider a Form 8275 disclosure.
Put each number on the right form. Form by form, and in TurboTax.
Report rewards, rebates and interest separately as ordinary income.
Keep everything. If the IRS issues guidance later, you will want to re-run the year.

Steps two and three are what WagerMints does, from your Kalshi export or Polymarket wallet, for free.

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WagerMints prices your Kalshi or Polymarket year under all four federal treatments, side by side, with the work shown and the forms filled. Free to run.

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