Key takeaway: Winnings from prediction markets face taxation across virtually all jurisdictions. How those earnings are categorised—whether as capital gains, gambling proceeds, or standard income—depends on your location and the frequency of your market activity. Maintaining comprehensive records of all transactions is essential.
The uncomfortable reality many traders avoid: are prediction market returns subject to tax? The answer is straightforward: in nearly all cases, yes. Below is a detailed regional guide explaining how tax authorities globally approach prediction market earnings.
United States
The IRS has not released targeted rules addressing prediction markets specifically, though established tax law frameworks apply:
- Capital gains treatment: Should prediction market shares qualify as property (comparable to digital assets), gains face short-term capital gains tax (taxed at standard income rates, reaching 37% maximum) when held for less than twelve months
- Gambling income: When categorised as gambling, all winnings count as taxable ordinary income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (via Schedule A), though losses cannot reduce other income sources
- Kalshi (regulated): Generates 1099 forms for American participants. Polymarket does not issue these—yet you remain obligated to declare earnings
United Kingdom
HMRC typically views prediction market earnings as gambling returns, which remain untaxed for casual participants. That said:
- Should trading constitute your primary occupation, HMRC may reclassify it as trading income (liable to income tax)
- Stablecoin transactions (such as USDC conversion) may trigger separate capital gains obligations
- Those engaged professionally should obtain formal HMRC advice
European Union
Member states apply differing tax frameworks:
- Germany: Returns taxed under private disposal rules or as speculative earnings (consult our German tax guide)
- France: Digital asset gains face a uniform 30% levy (PFU), encompassing prediction market returns denominated in crypto
- Netherlands: Portfolio-based wealth tax (Box 3) assessed on holdings rather than realised profits
Australia
The ATO categorises prediction market returns as assessable income. Frequent traders face classification as ordinary income earners. Occasional traders might pursue hobbyist classification, though the ATO has tightened enforcement around crypto-related trading in recent years.
Record-keeping best practices
Across all jurisdictions, document the following:
- Each transaction: timestamp, market name, position type (YES/NO), entry price, volume
- Fund movements including dates, times, and values
- Exchange rates for USDC and fiat conversions at each transaction point
- Proof of platform charges
- Final market outcomes and settlement proceeds
PolyGram's tax export feature creates IRS 8949-ready documentation and EU MiCA-formatted files directly from your activity log. Start trading on PolyGram →