If you’ve made money on a prediction market - say, by correctly forecasting the outcome of a Supreme Court case or a jobs report - you might be wondering: what happens at tax time?
It’s a fair question, and one a lot of people get wrong.
Prediction markets are a new legal frontier in the U.S., and even tax professionals are still catching up. These platforms don’t fit neatly into the boxes we’re used to. They aren’t sportsbooks. They aren’t stock brokerages. And for now, the IRS hasn’t issued specific rules that spell out exactly how to report your winnings.
This article breaks down how prediction market profits are currently taxed - based on the best guidance available as of 2025. We’ll cover:
- Whether they’re treated like gambling, investing, or earned income
- How the IRS currently views profits from regulated platforms like Kalshi
- What forms you’ll need (if any), and how to stay compliant
Note: This article focuses on U.S.-based, legally regulated markets - not offshore platforms or crypto-based prediction sites like Polymarket. Those come with different (and murkier) implications.
The tax treatment of prediction markets is a relatively new area and may evolve. It's always best to consult with a qualified tax professional for personalized advice on your specific situation.
How Are Prediction Market Winnings Taxed in the U.S.?
Prediction markets might feel like betting, but from a tax perspective, they live in a very different category.
Platforms like Kalshi operate under CFTC oversight, which puts them closer to futures trading than gambling. That means the IRS doesn’t treat your profits the way it would winnings from a sportsbook or casino. There’s no W-2G. No automatic withholding. And no special “wagering income” line on your return.
However, the IRS does not currently view those winnings as capital gains either.
As of 2025, the IRS has not issued formal guidance specific to prediction market taxes. But based on how platforms like Kalshi operate - and how tax professionals are advising clients - profits from regulated prediction markets are currently treated as ordinary income.
In other words:
- They’re not classified as gambling winnings - there's no W-2G, no 24% withholding
- They’re not taxed as capital gains, like stocks or crypto
- Instead, they’re treated as “Other Income” on your tax return - similar to side hustle earnings, prize winnings, or freelance income
If you earn more than a certain threshold (usually $600), you may receive a Form 1099-MISC from the platform. But even if you don’t, the IRS still expects you to report your gains.
Most users will list them on Schedule 1, Line 8z of Form 1040, with a label like “Kalshi profits” or “prediction market earnings.”
Bottom line:
Winnings from legal, CFTC-regulated prediction markets are considered taxable income, reported on Schedule 1, Line 8z of your 1040. You’ll pay your ordinary federal income tax rate - no special gambling or capital gains treatment applies.
Are Prediction Markets Taxed Like Gambling or Investing?
Prediction markets exist in a bit of a legal gray zone. Depending on how the platform is structured, your winnings might look like gambling income, trading profits, or something in between. But if we focus strictly on U.S.-regulated platforms like Kalshi, here’s where things currently stand:
❌ Not Gambling
Even if the questions feel bet-like (“Will inflation rise above 3.5%?”) or are related to sports, the IRS doesn’t consider prediction market profits from regulated platforms to be gambling income. That’s because:
Kalshi is regulated by the Commodity Futures Trading Commission (CFTC) - not a state gaming board
Its event contracts are structured more like binary options or futures, not wagers
There’s no house - you’re trading against other users, not the platform
In short, there’s no legal basis for applying gambling tax rules here. You won’t get a W-2G form, and your winnings won’t be subject to automatic withholding like casino or sportsbook payouts.
❌ Not Capital Gains (for Now)
Some people assume prediction markets are taxed like investments - especially since Kalshi’s contracts settle based on real-world outcomes and expire like options. But the IRS hasn’t officially classified these trades as capital assets, which means:
No 60/40 blended tax rate (like Section 1256 futures contracts)
No long-term vs short-term distinction
No treatment under Schedule D or Form 8949
That could change in the future. But as of now, event contracts don’t qualify for capital gains treatment - even though many traders argue they should.
✅ Treated as Miscellaneous Income
Instead, your winnings are generally treated as “Other Income.” That means:
You report the full amount of net profit (not just large wins)
It goes on Schedule 1 of your 1040, Line 8z
You’re taxed at your regular federal income rate
It’s not glamorous, but it’s simple: If you made money on a prediction market, the IRS wants you to treat it like any other miscellaneous windfall.
Are Taxes on Prediction Markets Lower Than Sports Betting?
In most cases - yes.
The way the IRS taxes legal sports betting and regulated prediction markets is fundamentally different, and that difference often results in a lower effective tax burden for prediction market traders.
🧾 Sports Betting: Flat Withholding + Gambling Classification
If you win big at a sportsbook - say, over $600 on a single wager at long odds - the operator is required to report that win to the IRS using Form W-2G. For larger wins, federal tax may even be withheld upfront, usually at a flat rate of 24%.
Even if your win doesn’t trigger a W-2G, you're still legally required to report all gambling income. But here's the kicker: you're only allowed to deduct gambling losses up to your winnings - and only if you itemize deductions, which most people don’t.
📈 Prediction Markets: No Flat Rate, No Withholding
With platforms like Kalshi, it’s a different story:
No automatic withholding - you receive your full profits, and it's on you to report them
No flat tax rate - your earnings are taxed at your ordinary income rate, which might be lower than 24%
No gambling classification - so you’re not subject to the same W-2G rules or loss limitations
If you're in a moderate income bracket and make a few hundred (or even a few thousand) dollars on Kalshi, you’ll likely pay less in taxes than someone making the same amount from sports betting.
⚠️ Don’t Confuse “Lower” With “Optional”
Just because Kalshi doesn’t withhold taxes or file a W-2G doesn’t mean you’re off the hook. The IRS expects you to report every dollar of net gain - even if you don’t receive a 1099.
Do You Need to Report Prediction Market Profits to the IRS?
Yes. And it doesn’t matter if the platform sends you a tax form or not.
If you made a profit - whether it's $50 or $5,000 - the IRS expects you to report it. Prediction market platforms aren’t required to issue tax forms unless you pass certain thresholds (usually $600 in net earnings and a certain number of transactions). Even then, they may not send one at all.
But that doesn’t change your responsibility. Income is taxable whether it’s reported to the IRS by a third party or not.
How to Report Prediction Market Profits
As of 2025, the best practice is:
Report your profits as “Other Income” on Schedule 1 (Form 1040)
Use Line 8z and enter a short description like “Prediction Market earnings”
Include your net gain - total profits minus any losses on expired or losing contracts
Keep records (screenshots, transaction history, exports) in case of audit
If Kalshi or another platform sends you a Form 1099-MISC, use the amount listed and match it with your internal records. But again - you’re on the hook either way.
Think of it like freelance work. The IRS doesn’t care whether your client sent you a form - they still expect their cut.
Prediction Market Taxes FAQs
Yes. Winnings from Kalshi, a CFTC-regulated U.S. prediction market, are considered taxable income. Profits must be reported to the IRS, typically as “Other Income” on Schedule 1 (Form 1040). Even if you don’t receive a 1099, you’re still required to report your net gains.
Yes. Although PredictIt operated under a research exemption, the IRS still considers user profits to be taxable income. You should report your net earnings from trading on Schedule 1 of your 1040, even if no tax form is issued.
Yes, but it’s more complicated. Polymarket is an offshore, crypto-based platform not registered with U.S. regulators. While profits are still taxable under U.S. law, reporting them may involve calculating capital gains or converting crypto transactions. Consult a tax professional.
No. As of this writing, regulated prediction markets like Kalshi are not classified as gambling by the IRS. Profits are not taxed like sportsbook or casino winnings. Instead, they’re treated as ordinary income and reported on Schedule 1 of your federal tax return.
No. Currently, they’re treated as income. The IRS has not classified prediction market trades as capital assets, so gains are not taxed as capital gains. Profits from regulated platforms like Kalshi are reported as “Other Income” and taxed at your ordinary rate.
You might. Platforms like Kalshi may issue a 1099-MISC if your net earnings exceed $600 and meet other criteria. However, not receiving a form doesn’t exempt you—you're still required to report all profits to the IRS.
Report your net profits as “Other Income” on Schedule 1 (Form 1040), Line 8z. Include a brief label like “Kalshi earnings.” Keep records of all trades and payouts in case of IRS review or audit.
Usually, yes. Sports betting winnings may be subject to 24% withholding and are reported as gambling income. Prediction market earnings are taxed as ordinary income, which often results in a lower effective tax rate, especially for moderate earners.
Marcus has spent over 20 years navigating the legal side of online betting - from his early days consulting for offshore operators to helping licensed U.S. sportsbooks launch in regulated markets. He’s worked with compliance teams, reviewed licensing frameworks in 15+ states, and advised on some of the biggest regulatory shifts since PASPA was repealed.
At BettingScanner, Marcus serves as the voice of reason - translating legalese into plain English and helping bettors understand what’s legal, what’s risky, and where the gray areas live. If you’re ever unsure about the rules, Marcus is your man - as he probably helped write them.
