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Prediction Market Taxes 2026: Kalshi, Polymarket, Robinhood
By Odds Reference Published March 1, 2026 Updated July 19, 2026 Editorial Policy
The IRS has issued no specific guidance on classifying prediction market profits, per its own Tax Topic 419 on gambling income (checked July 2026). Three classifications are plausible — gambling income, capital gains, or Section 1256 contracts — each with different tax rates and OBBBA exposure. Kalshi issues 1099-MISC, Robinhood issues 1099-B, Polymarket issues nothing.
Last Updated: July 2026
This is general information, not tax advice. Consult a qualified CPA for your specific situation.
This is one of the most legally unsettled areas of US tax law. Consult a CPA with experience in prediction markets or derivatives before filing.
Key Takeaways
- The IRS has published no specific guidance on prediction market tax classification (verified against IRS Tax Topic 419, July 2026) — three plausible treatments exist with materially different outcomes.
- Kalshi issues 1099-MISC for net payouts of $600+; Robinhood issues 1099-B for event contracts; Polymarket issues no tax forms.
- If classified as gambling income: ordinary tax rates (10–37%) apply, and the OBBBA 90% loss cap restricts deductions.
- If classified as capital gains: long-term rates (0–20%) may apply for contracts held over one year, with full loss deduction up to gains.
- If classified as Section 1256 contracts: the 60/40 rule applies (60% long-term, 40% short-term), regardless of holding period.
What Are the Three Possible Tax Classifications?
The absence of IRS guidance means taxpayers and their CPAs must choose a classification. Each option carries different rates and interacts differently with the 2026 OBBBA cap; Section 1256 treatment is filed on IRS Form 6781. Our dataset tracks over 12,000 active markets — the tax treatment of their profits remains an open question.
| Classification | Tax Rate | Loss Deduction | OBBBA 90% Cap | Reporting Form |
|---|---|---|---|---|
| Gambling income | 10–37% (ordinary) | Up to 90% of winnings (Schedule A) | Yes | Schedule A |
| Short-term capital gains | 10–37% (ordinary) | Up to $3,000 net loss/year | No | Schedule D |
| Long-term capital gains | 0–20% | Up to $3,000 net loss/year | No | Schedule D |
| Section 1256 contracts | 60% at LTCG rate, 40% at ordinary rate | 3-year carryback allowed | No | Form 6781 |
The classification difference is not trivial. A trader with $100,000 in prediction market profits at the highest bracket:
- Gambling income: $37,000 federal tax, OBBBA cap on losses
- Long-term capital gains: $20,000 federal tax, no OBBBA cap
- Section 1256: ~$26,800 federal tax (blended rate), 3-year loss carryback
How Does Each Platform Handle Tax Reporting?
Platform reporting practices diverge sharply, which complicates filing regardless of which classification you choose. Kalshi issues a 1099-MISC (the same form used for freelance income), Robinhood issues a 1099-B (the securities form), and Polymarket issues nothing at all — three different signals about how each platform views these contracts.
Kalshi
Kalshi is a CFTC-regulated Designated Contract Market. It issues 1099-MISC forms for net payouts of $600 or more per calendar year. The 1099-MISC reports net gains, not gross volume. Kalshi provides downloadable transaction history for all trades.
The 1099-MISC classification is notable — MISC is the same form used for freelance income, not the 1099-B used for securities or the W-2G used for gambling. This does not definitively classify prediction market income; it reflects Kalshi’s operational reporting choice.
Polymarket
Polymarket is an offshore, blockchain-based exchange. It issues no tax forms to US users. All transactions occur on the Polygon blockchain using USDC, and users must self-report profits. Transaction records exist on-chain and can be reconstructed from wallet history, but Polymarket provides no consolidated tax reporting.
US taxpayers are obligated to report all worldwide income regardless of whether a 1099 is received — see IRS Tax Topic 419 on gambling income and Publication 525 on taxable income generally. The absence of platform reporting does not eliminate the tax obligation — it transfers the record-keeping burden to the user. Track Polymarket market movements and your positions on the Odds Reference dashboard.
Robinhood
Robinhood entered event contracts in 2025 and issues 1099-B forms — the same form used for stock and options trades. This treatment implies Robinhood classifies event contracts as securities, which would support a capital gains or Section 1256 interpretation. However, Robinhood’s classification does not bind the IRS.
| Platform | Tax Form | Threshold | Classification Implied |
|---|---|---|---|
| Kalshi | 1099-MISC | $600 net payout | Miscellaneous income |
| Polymarket | None | N/A | Self-report required |
| Robinhood | 1099-B | All trades | Securities / capital gains |
Does the OBBBA 90% Cap Apply to Prediction Markets?
It depends entirely on classification. If prediction market profits are gambling income, the OBBBA 90% cap applies — meaning you can only deduct 90% of prediction market losses against prediction market (and other gambling) winnings. If they are capital gains or Section 1256, the OBBBA cap does not apply.
This is the single most consequential classification question for active prediction market traders. A high-volume trader with $200,000 in wins and $200,000 in losses pays $0 under capital gains treatment but $4,800+ under gambling treatment (assuming the 24% bracket on $20,000 phantom income from the 90% cap).
For comparison, sports betting losses are unambiguously subject to the OBBBA cap, and DFS losses are not (DFS is classified as Other Income). Prediction markets sit in the gap between these two established categories. Tax treatment is a separate question from whether trading is legal in your state at all — see our state-by-state legal tracker if you are unsure whether a platform currently operates where you live.
How Should You Approach Filing?
There is no single correct answer, so the safest approach is procedural: pick a defensible classification with a CPA, document the reasoning, apply it consistently across every platform, and keep complete trade records. Consistency matters more than which classification you choose, since switching methods year to year invites IRS scrutiny.
The three steps:
- Choose a classification with your CPA based on your trading pattern, the nature of the contracts, and relevant precedent. Document the reasoning.
- File consistently — apply the same classification uniformly across all prediction market activity for the tax year.
- Maintain complete records — date, cost basis, proceeds, platform, and holding period for every trade. For Polymarket, on-chain transaction hashes serve as primary documentation.
Use our gambling tax calculator to model the tax impact under each classification. The difference between gambling and capital gains treatment can be tens of thousands of dollars for active traders.
FAQ
Q: Does Kalshi report to the IRS?
A: Yes. Kalshi issues 1099-MISC forms for net payouts of $600 or more in a calendar year. Because Kalshi is a CFTC-regulated Designated Contract Market, it follows standard broker reporting requirements. The 1099-MISC reports your net gains — gross payouts minus cost basis — and is filed with both you and the IRS. You owe taxes on all profits regardless of whether you receive a 1099.
Q: Does Polymarket send tax forms?
A: No. Polymarket is an offshore, blockchain-based platform that does not issue 1099s or any IRS reporting forms. This does not eliminate your tax obligation. US taxpayers are required to report all worldwide income, including profits from unregulated prediction markets. You must self-report Polymarket gains on your federal return and maintain your own transaction records.
Q: Are prediction market profits capital gains?
A: Possibly. The IRS has not issued specific guidance. Three classifications are plausible: gambling income (taxed at ordinary rates, 10–37%), capital gains (0–20% for long-term, ordinary rates for short-term), or Section 1256 contracts (60/40 long/short-term split). Each carries different deduction rules and OBBBA exposure. A CPA with derivatives experience should make this determination.
Q: Do I owe taxes on prediction market profits below $600?
A: Yes. The $600 threshold only determines whether Kalshi sends a 1099-MISC. All prediction market profits are taxable regardless of amount. If you net $200 across a year of trading on any platform, that $200 is reportable income. The IRS expects taxpayers to report all income even without receiving a tax form.
Q: Can I offset prediction market losses against stock gains?
A: Only if prediction market contracts are classified as capital assets. Under gambling classification, prediction market losses are only deductible against gambling winnings on Schedule A. Under capital gains classification, they could potentially offset stock gains on Schedule D. This is another reason the classification question matters. Consult a CPA.