Do You Pay Tax on Prediction Market Winnings?
Discover how prediction market winnings are taxed in the U.S. Explore whether event contracts are treated as capital gains, ordinary income, or gambling, and get essential tax tracking tips for Kalshi and Polymarket US.
Sam Eaton - October 31, 2026, 3:00 PM EDT
3 Minute ReadDo You Pay Tax on Prediction Market Winnings?
Yes. Profits from Kalshi, Polymarket and other prediction markets are taxable income in the US, whether or not the platform sends you a tax form. What's still unsettled is how they're taxed: as of 2026 the IRS hasn't issued specific guidance on event contracts, so tax professionals treat the income in different ways.
This guide explains the basics for anyone trading the 2026 midterms. It isn't tax advice, and the rules may change, so speak to a tax professional about your own situation.
Are midterm market winnings taxable?
Yes. If you buy a contract on the House or Senate and it pays out, or you sell a position for more than you paid, the profit counts as income. That applies whether you hold to settlement or sell early, and whether you withdraw the money or leave it on the platform.
How are prediction market winnings taxed?
Because there's no IRS ruling on event contracts, tax professionals generally use one of three approaches:
Treatment | How it works | What it means for losses |
|---|---|---|
Capital gains or futures-style (Section 1256) | Treats contracts like other regulated financial contracts | Generally the most favorable for active traders, but the least certain |
Ordinary income | Profits taxed at your normal income rate | Often seen as a middle-ground position |
Gambling income | Winnings reported as other income | Losses only deductible if you itemize, and from the 2026 tax year only up to 90% of losses can be deducted |
Which approach applies to you is a question for a tax professional. Whatever the treatment, you still need to report the income.
Will Kalshi or Polymarket send me a tax form?
Don't count on getting one for your trading profits.
- Kalshi provides profit and loss statements, and has said it may issue forms such as a 1099-INT for interest and a 1099-MISC for credits or rewards above IRS thresholds. Reports differ on whether event-contract profits are covered, so check the tax documents in your account.
- Polymarket has been reported not to issue 1099 forms for trading activity, even after launching its CFTC-regulated US exchange.
Not getting a form doesn't mean you owe nothing. The IRS expects you to report all taxable income either way.
What about welcome bonuses?
Bonus credits, such as the $25 from Kalshi promo code ODDSCHECKER or Polymarket promo code CHECK, may also count as income. Kalshi says credits and rewards can be reported on a 1099-MISC above IRS thresholds. Keep a note of any bonuses you receive.
Tips for midterm traders
- Download your statements. Export your trade history and P&L after the midterms settle, and again at year end.
- Track every trade. Record what you paid, what you sold or settled for, and any fees.
- Remember settlement dates. Some midterm markets, such as Kalshi's Senate control market, may not settle until February 1, 2027, which can push a profit into the next tax year.
- Check your state. Most states tax this income too.
- Get advice if you trade a lot. The right treatment can make a big difference to what you owe.
Prediction market tax FAQs
Do you have to pay tax on Kalshi winnings?
Yes. Kalshi profits are taxable whether or not you receive a form.
Do you have to pay tax on Polymarket winnings?
Yes. Polymarket profits are taxable even though it has been reported not to issue 1099s.
Can I deduct my losses?
Possibly, depending on how the income is treated. Under a gambling treatment, losses are only deductible if you itemize, capped at 90% from the 2026 tax year. Ask a tax professional.
Do I pay tax if I lose money overall?
If you have a net loss, you may have no taxable profit, but you should still keep records. How losses are treated depends on the classification you use.
Ready to trade the midterms? Compare prices on our US politics odds page, then sign up through oddschecker. with Kalshi code ODDSCHECKER or Polymarket code CHECK.
This article is general information, not tax or legal advice. Tax rules for prediction markets are unsettled and may change; consult a qualified tax professional. Kalshi and Polymarket US are CFTC-regulated exchanges. Age and state eligibility rules apply, and promo terms apply. The Polymarket offer is not available in Nevada. Trading event contracts carries a risk of loss. If you or someone you know has a gambling problem, call 1-800-GAMBLER.
