PREDICTION MARKETS AND TAXES (US) — 2026 GUIDE

Do I pay taxes on Kalshi winnings?

Yes. Profits from Kalshi and Polymarket US are taxable and must be reported, even if you don't receive a 1099. What isn't settled is how they're taxed: the IRS has not issued any guidance on event contracts, and tax professionals disagree on whether profits are gambling income, ordinary income or capital gains, or Section 1256 contracts.

TL;DR:

There is no IRS guidance on prediction-market event contracts yet. Three treatments are argued: gambling income, ordinary income or capital gains, or — the aggressive position — Section 1256 (60% long-term / 40% short-term). Kalshi does not issue a 1099-B for event-contract profits; it provides a profit-and-loss statement, plus 1099s for interest and rewards. Keep your own records. Talk to a tax professional.

The short answer

Your profits are taxable, but no single treatment has been confirmed by the IRS. The classification matters: from 2026, if gambling treatment applies, only 90% of gambling losses are deductible, so even a break-even trader could owe tax. Section 1256 treatment would avoid that limit, but it is the most aggressive of the three positions.

Polymarket US is a CFTC-regulated exchange that funds and trades in US dollars. The same open question applies to it, and its tax-reporting practice isn't clearly published, so check the app for any tax documents it provides and confirm with a tax pro. (The international polymarket.com site, which is not for US users, settles in USDC, where digital-asset rules may come into play.)

The three possible treatments

• Gambling income — profits are ordinary income; losses are deductible only as an itemized deduction, only up to your winnings, and from 2026 only 90% of them.
• Ordinary income or capital gains — the contract is treated as a derivative that isn't a Section 1256 contract, taxed under the normal rules.
• Section 1256 contracts — 60% long-term / 40% short-term capital gains, marked to market at year end and reported on Form 6781. This is the aggressive position: KPMG notes that fully collateralized event contracts don't seem to meet the definition of a regulated futures contract, and that they could be excluded if they count as swaps.

This is general information, not tax advice. Talk to a CPA who handles event contracts and derivatives.

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18+ Only. Restrictions and eligibility requirements apply. Not available in all jurisdictions. Trading is risky. 100% loss can occur. See polymarket.com/tos for more information. The Polymarket US App serves as an independent software provider and affiliate of Polymarket US and Polymarket Clearing, the CFTC-regulated exchange and clearing organization.

What tax forms you'll actually get

Don't expect one 1099 that covers your trading profits. Kalshi's help center lists a 1099-INT for interest, a 1099-MISC for credits and rewards, a 1099-B only for crypto-transfer proceeds, and a 1099-DA for digital assets; for event-contract trades it provides a downloadable profit-and-loss statement instead. Polymarket US hasn't clearly published what it issues, so check the app. Either way, you must report your profits whether or not a form arrives.

What to keep records of

For every position: market name, entry price, exit price, contracts, fees, and timestamps. Download Kalshi's profit-and-loss statement and export its activity CSV monthly. For Polymarket US, save your trade history, statements and deposit/withdrawal confirmations from the app — they're the audit trail, and they let your tax professional apply whichever treatment you settle on.

State considerations

Most states start from your federal income, so the federal classification you use will usually carry through to your state return, but state rules on income and on deducting losses differ. Check your state's guidance before April.

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Frequently asked questions

Do I pay taxes on Kalshi winnings?

Yes. Profits are taxable and must be reported, but the IRS hasn't issued guidance on how event contracts are classified — gambling income, ordinary income or capital gains, and Section 1256 (60/40) are all argued. Keep Kalshi's profit-and-loss statement and ask a tax professional.

How are Polymarket winnings taxed?

The same open question applies. Polymarket US trades in dollars on a CFTC-regulated exchange, but the IRS hasn't said how event contracts are taxed, and Polymarket US hasn't clearly published which tax forms it issues. Your profits are still reportable — save your trade history and get advice from a tax professional who handles event contracts.

Does Kalshi send a 1099?

Not for your trading profits. Kalshi issues a 1099-INT for interest, a 1099-MISC for credits and rewards, and a 1099-B only for crypto-transfer proceeds. For event-contract trades it provides a profit-and-loss statement you can download instead.

Do I have to report small wins?

Yes. Taxable income is reportable no matter the amount, whether or not you receive a 1099.

Can I offset prediction market losses?

It depends on the classification, which isn't settled. Under gambling treatment, losses are deductible only if you itemize, only up to your winnings, and from 2026 only 90% of them. Section 1256 treatment would avoid that limit, but the IRS hasn't confirmed it applies. Confirm with a tax professional before you file.