# Prediction market taxes in the US URL: https://www.market-guy.com/learn/prediction-market-taxes-us Updated: 2026-07-26 Two things are clear: the profits are taxable, and not receiving a form does not change that. Almost everything else is genuinely unsettled — here's an honest map. ## The part that is not ambiguous Profits from prediction market trading are taxable income in the United States. This holds whether you traded on Polymarket, Kalshi or anywhere else, whether you received a tax form or not, and whether you withdrew the money to your bank or left it sitting on the platform. The taxable event is the gain, not the withdrawal. Waiting to cash out does not defer anything. Key point: No 1099 does not mean no tax. The reporting obligation is yours regardless of what arrives in the mail. ## What forms you may or may not get Coverage is inconsistent across platforms, and that inconsistency is itself a trap — people read "no form" as "nothing to report". Kalshi issues some documentation, typically a 1099-INT for interest on cash balances above the threshold and a 1099-MISC for referral bonuses, but has not historically issued a comprehensive 1099-B covering event-contract trades. The global Polymarket platform, as an offshore venue, has not issued US tax forms at all. Reporting practices at the newer US-registered venues are still settling. ## The classification question nobody has answered Here is the honest state of play: as of mid-2026 the IRS has not published a ruling that classifies prediction market contracts. No Revenue Ruling, no Private Letter Ruling, no FAQ directly resolves it. That means practitioners take different positions, and the position taken changes what you owe. This is not a gap you should close by picking whichever treatment reads best — it is the specific point on which to get advice from someone who will sign the return. - Treated as capital gains — short or long term depending on holding period. - Treated as ordinary income — for example as gambling winnings, which brings its own rules on deducting losses. - Treated under the rules that apply to regulated futures contracts, which some argue follows from DCM status. ## Losses are where the treatments really diverge Under a capital-gains treatment, losses offset gains and a limited amount of ordinary income, with the remainder carried forward. Under a gambling treatment, losses are only deductible against winnings and generally only if you itemise — which for many people means no benefit at all. If you had a losing year, this distinction is the difference between a deduction and nothing. It is the strongest single reason to talk to a professional rather than guess. ## Keep records from day one Whatever treatment you end up on, it requires the same underlying data, and platforms do not always make history easy to reconstruct after the fact. Export as you go. The IRS can look back several years, so a full trade history is worth far more than a year-end screenshot. - Date, market and side of every entry and exit. - Price paid and price received, in USD. - Fees paid and rebates received. - Deposits and withdrawals, with dates. - For crypto-funded accounts: the USD value at each conversion. ## FAQ Q: Do I owe tax if I never withdrew? A: Generally yes — the gain is what is taxed, not the transfer to your bank. Leaving a balance on the platform does not defer the obligation. Q: Polymarket did not send me a 1099. Am I fine? A: No. The absence of an information return does not remove your obligation to report the income. It only means the reporting burden sits entirely with you. Q: Are prediction market profits capital gains or gambling winnings? A: Unresolved. The IRS has not issued guidance classifying event contracts, and practitioners take different positions with materially different outcomes — particularly on whether losses are usable. Get advice specific to your situation. Q: Can I deduct my losses? A: It depends entirely on the classification. Under capital treatment losses offset gains and a limited amount of ordinary income; under gambling treatment they are deductible only against winnings and generally only if you itemise. ## Sources - [IRS — Topic no. 419, Gambling income and losses](https://www.irs.gov/taxtopics/tc419) - [IRS — Topic no. 409, Capital gains and losses](https://www.irs.gov/taxtopics/tc409) - [IRS — Publication 550, Investment Income and Expenses](https://www.irs.gov/forms-pubs/about-publication-550) --- Research tooling for prediction markets. Not financial advice.