Kalshi and prediction markets in Maryland: taxes and legal status

For 2025, Maryland state rates run from 2% to 6.5%. Single filers pay 4.75% from $3,001 to $100,000, 5% to 5.75% up to $500,000, 6.25% to $1 million, and 6.5% above $1 million. Joint filers pay 6.25% from $600,001 and 6.5% above $1.2 million.

Counties and Baltimore City add an income tax of 2.25% to 3.30%, collected on the state return and based on where you live.

Short-term gains are taxed like other income at the Maryland rates. From tax year 2025, filers with federal AGI over $350,000 also pay an extra 2% on certain net capital gain (Form 502CG).

Maryland allows gambling losses only if you itemize. Maryland itemized deductions start from federal Schedule A, line 17, so a federal gambling loss deduction carries over. From 2025, itemized deductions are reduced for filers with federal AGI over $200,000 ($100,000 if married filing separately).

• Residents and nonresidents are both taxed on winnings from lottery, racetrack betting and gambling.
• You may itemize on the Maryland return only if you itemized on the federal return. Itemizing federally doesn't require you to itemize for Maryland.
• Maryland withholds 9.5% for residents and 8.75% for nonresidents on winnings over $5,000 (Comptroller Tax Alert updated July 1, 2025). Horse race pari-mutuel winnings are withheld if over $5,000 and at least 300 times the wager. If you owe tax on winnings over $500 with nothing withheld, pay with Form PV within 60 days.
• Maryland's itemized deductions copy federal Schedule A, line 17, but the state hasn't said how it treats the 2026 limit.

As of October 27, 2026, no court order stops prediction market trading in Maryland. The state's gaming commission sent Kalshi a cease-and-desist letter in 2025 and a federal judge refused to block the state, but the Fourth Circuit appeals court, which heard Kalshi's appeal on May 7, 2026, hasn't ruled. The city of Baltimore also sued Kalshi and Polymarket US in August 2026.

States say prediction market sports contracts are bets that their gambling laws cover, while Kalshi and the CFTC say they are swaps, a kind of derivative that only the federal Commodity Exchange Act and the CFTC regulate. The Third Circuit appeals court sided with Kalshi against New Jersey in April 2026, while the Ninth Circuit (Nevada, August 2026) and the Sixth Circuit (Ohio and Tennessee, September 2026) ruled for the states, all at the preliminary stage. The Fourth Circuit (Maryland) heard argument in May 2026 and had not ruled as of October 27. New Jersey's petition to the Supreme Court, Flaherty v. KalshiEX (No. 26-299), is waiting on Kalshi's response due November 9, 2026, and the Court has not yet said whether it will hear the case. On October 9, 2026 the CFTC proposed a rule defining event contracts as swaps.

The IRS hasn’t said how prediction market trades are taxed, so you pick one of four federal methods: capital gains, ordinary income, gambling or Section 1256. Maryland starts from your federal figures, so the method you choose federally generally carries onto your state return. If you report as gambling, the loss rules above apply. The four methods, compared.

The court cases are about whether Maryland can license or stop the platforms. None of them decides how your trades are taxed. Trades you already made, including positions an order made you close, still count in your tax year.