Prediction Markets Tax: 2026 Kalshi & Polymarket Guide

What is a prediction market?

A prediction market is a platform where you bet real money on whether a specific event will happen, like an election result, a Federal Reserve rate decision, or a sports game outcome. If your bet is right, you get a payout. If it's wrong, you lose what you put in.

The most popular prediction market platforms are Kalshi, Polymarket, and Robinhood (which added event contracts in 2025 by routing orders through Kalshi).

All income from prediction markets is reportable to the IRS. What's unsettled is which category that income falls into.

How is prediction market income taxed?

The IRS has never published a formal ruling classifying prediction market contracts. At this time, most tax professionals use one of three approaches to report the income. You need to pick an approach, apply it consistently from year to year, and document your reasoning.

Reporting winnings as gambling income

Under gambling treatment, you report your gross winnings as ordinary income on Schedule 1, Line 8b of Form 1040.

You can deduct gambling losses, but only up to the amount of your winnings, only up to 90% of your total losses, and only if you itemize on Schedule A. If you take the standard deduction, you cannot deduct any losses at all.

That last point is the trap most people miss. The majority of taxpayers take the standard deduction, which means they pay tax on their gross winnings rather than their actual profit.

Income from sports-outcome contracts is the most likely to be treated as gambling income, since those bets closely resemble traditional sports betting. The IRS has not confirmed this, but many tax professionals believe the type of contract is a factor in how the income is classified.

Reporting winnings as capital gains

Some tax professionals believe prediction market bets should be treated like investment contracts, which have traditionally been taxed as capital gains.

This treatment has a real advantage over gambling income: you can deduct your losses against your gains without itemizing. You report capital gains and losses on Form 8949 and Schedule D, the same forms used for stock or crypto trades.

Most prediction market positions are held for a short time, so your gains will usually be short-term and taxed at your ordinary income rate (10-37%). A position held longer than a year is taxed at the long-term capital gains rate (0-20%).

Reporting winnings under Section 1256

Unlike other platforms, Kalshi operates as a Designated Contract Market (DCM) regulated by the Commodity Futures Trading Commission (CFTC). That raises the possibility that its contracts qualify for Section 1256, a treatment that applies to certain CFTC-regulated contracts.

Section 1256 offers the most favorable treatment of the three. Under it, 60% of your net gains are taxed at the long-term capital gains rate and 40% at the short-term rate, regardless of how long you held the contract.

The difference is meaningful. On $50,000 in net gains, Section 1256 treatment results in roughly $13,400 in federal tax, versus roughly $18,500 under short-term capital gains treatment (assuming the top 2026 bracket).

Can I really use Section 1256 for my prediction market income?

Be careful here. Reporting Kalshi income under Section 1256 is a very aggressive position.

The treatment is only even relevant for Kalshi, since it is CFTC-regulated. Polymarket does not qualify under any reading of Section 1256.

And many tax professionals believe it does not apply to Kalshi either. Section 1256 covers specific contract types defined in the tax code, and event-based contracts do not currently fall under that code. Some tax attorneys argue this blocks Section 1256 for Kalshi entirely.

If you are considering this approach, talk to a tax professional before you file.

Does Kalshi send you a tax form?

Kalshi does not send a comprehensive 1099-B covering all of your event contract trades.

Robinhood routes its prediction market orders through Kalshi, and has stated it will not provide 1099s for event contract trades either.

Does Polymarket send you a tax form?

No. Polymarket is a decentralized, offshore platform. It does not collect identity information and does not issue any tax forms. Your source of truth is your Polygon wallet, where every transaction is permanently recorded and publicly accessible.

Polymarket has a second wrinkle the other platforms don't. You trade with USDC, a stablecoin, on the Polygon blockchain, so every time you enter or exit a market you are also disposing of a crypto asset. That disposal is a taxable event in its own right, separate from your gain or loss on the prediction itself. A single Polymarket position can create both a capital gain or loss on the contract and a crypto disposal on the USDC, and both need to be reported.

How do you keep track of your prediction market trades?

Because no platform hands you a complete tax form, you are the system of record. For each trade, track:

• The date you opened and closed the position
• The contract name and description
• The amount you wagered
• The payout you received
• Your net gain or loss

For Kalshi, use the account export feature in your settings, and export at least once per quarter so your records stay accurate.

For Polymarket, your Polygon wallet holds the full history. Crypto tax software like CoinLedger connects to your wallet address, imports your complete Polymarket transaction history, and calculates your USDC gains and losses alongside your prediction market income.

Handle your prediction market taxes with confidence

Prediction market taxes are messy in 2026 because the rules are still being written. Your recordkeeping doesn't have to be.

CoinLedger connects to your wallets and exchanges, imports your Polymarket activity from your Polygon wallet, and reconstructs the USDC cost basis the platform never gives you, then generates the forms you need to file in minutes.

Get started with a free CoinLedger account today. Over 700,000 investors around the world trust the platform to handle their crypto tax reporting.