Kalshi Taxes & Polymarket Taxes: What Traders Owe in 2026

If you traded on Kalshi or Polymarket this year and made money, that profit is taxable. The harder question is how it gets taxed. Prediction-market contracts sit in an awkward spot: they look a lot like sports bets, but legally they are event contracts traded on a CFTC-regulated exchange, which is closer to how the IRS treats other financial instruments. That distinction changes which forms you receive, which loss rules apply, and potentially how much you owe.

This walks through what is reasonably settled and what is genuinely still being argued. The tax treatment of event contracts is evolving, and reasonable CPAs disagree on parts of it. Treat everything here as a starting point for a conversation with a tax professional, not as filing instructions.

TL;DR

• Yes, Kalshi and Polymarket profits are taxable. Prediction markets are not a tax-free wrapper.
• You will likely get a 1099, not a W-2G. Sportsbooks issue W-2G forms for gambling winnings. CFTC-regulated exchanges more commonly issue 1099-series forms (often a 1099-B), because the income is reported as trading activity rather than gambling.
• Ordinary income vs capital gains is the contested part. How event-contract gains are classified is not fully settled, and it matters for your rate.
• The 2026 90% gambling-loss cap may not hit contract trading the same way it hits sportsbook betting, because that cap is written for wagering losses. This is exactly where you want a professional's read.
• Keep your own records regardless of what the platform sends. Especially for international Polymarket, where you may get no form at all.

To model a rough number, our gambling tax calculator handles US federal and state rates, and the Kalshi and Polymarket calculator converts contract prices into the odds and profit figures you will actually be reporting.

Why prediction markets may be taxed differently from sportsbooks

A sportsbook bet is a wager. When you win one above a certain threshold, the book issues a W-2G, and your winnings are reported as gambling income under the wagering rules in the tax code. Losses are deductible only against winnings, and starting in 2026 only up to 90% of those losses. We covered that shift in detail in our post on the 2026 US gambling tax changes.

Kalshi and Polymarket are structured differently. They are exchanges regulated by the Commodity Futures Trading Commission, and what you buy is a contract that settles at $1.00 or $0.00 depending on an outcome. If you are new to the mechanics, our prediction markets guide covers how the contracts work. Because the venue is a regulated derivatives exchange rather than a sportsbook, the income is generally reported through the same channels used for trading gains, not through the gambling forms.

That is the mechanism worth understanding: the venue and the instrument drive the tax paperwork, and prediction markets are legally closer to a commodities exchange than to DraftKings. Whether that also changes the character of the income (ordinary vs capital) is the part still in flux.

What tax forms Kalshi and Polymarket may send

Here is the general landscape. Confirm the specifics against the tax documents in your own account, since platforms adjust their reporting as guidance develops.

A few things to know about the form types:

• 1099-B reports proceeds from broker and exchange transactions. If you get one, it typically summarizes your trades so gains and losses can be reconciled.
• 1099-MISC covers miscellaneous income and can show up for things like promotional credits or rewards.
• 1099-INT reports interest, which can appear if a platform pays yield on idle balances.

Getting a 1099-B instead of a W-2G is not a loophole. It just means your prediction-market activity is being reported as trading, which pulls it into a different section of your return.

"Does Kalshi report to the IRS?"

This is one of the most common searches, so it is worth answering plainly. If a platform issues you a 1099, a copy generally goes to the IRS too. That is how 1099 reporting works. So the practical answer for US traders on Kalshi and Polymarket US is: assume your activity is visible to the IRS, and file accordingly.

The safer mental model is that all of your gains are reportable whether or not a form arrives. Chasing whether a specific platform files a specific form is the wrong question. The right question is what you actually made, which you should be tracking yourself.

Ordinary income vs capital gains: the contested part

This is where honest experts diverge, so read it as an open question rather than a rule.

Some practitioners argue that gains on event contracts should be treated as ordinary income, similar to how many short-term trading gains and gambling-style payouts are taxed. Others argue that because these are exchange-traded contracts, at least some of them could fall under the rules for capital assets or even the special 60/40 treatment that applies to certain regulated futures contracts. Whether prediction-market event contracts qualify for that futures treatment is not something you should assume, and it is precisely the kind of position a CPA should sign off on before you take it.

Why it matters:

• Ordinary income is taxed at your regular marginal rate.
• Long-term capital gains (on assets held long enough) are generally taxed at lower rates.
• Special futures treatment, where it applies, blends long-term and short-term rates regardless of holding period.

Given how new US-regulated prediction-market trading is, published IRS guidance specific to these contracts is thin. Do not treat any single blog's confident classification, including a confident-sounding one, as settled law. If a large share of your income runs through these platforms, the classification question alone justifies professional advice.

Does the 2026 90% gambling-loss cap apply?

Starting in 2026, gambling losses are only 90% deductible against gambling winnings, which can leave bettors owing tax even on a break-even year. That rule is written around wagering losses.

Here is the nuance. If your Kalshi and Polymarket activity is reported and treated as trading rather than gambling, the 90% wagering-loss cap may not apply to it the same way, because your losses would not be "wagering losses" in the first place. Instead, capital-loss rules could govern, which come with their own limits (net capital losses are generally deductible against ordinary income only up to a yearly cap, with the rest carried forward).

That could cut either way for you. Trading treatment avoids the 90% haircut, but capital-loss rules have their own ceilings and carryforward mechanics. Which regime you land in depends on how the income is characterized, which loops back to the unsettled ordinary-vs-capital question above.

Record-keeping: do this no matter what

Whatever the classification turns out to be, clean records make it manageable and protect you in an audit. Track:

• Date and platform for every trade.
• Entry price and exit or settlement value per contract.
• Fees paid, since fees affect your actual gain. Both platforms charge per-contract fees that vary by price and category.
• The market and outcome, so you can reconstruct what happened months later.
• USDC conversions if you use international Polymarket, including the dollar value at the time of each transaction.

If you also bet sportsbooks, keep those records separate from your prediction-market records. They may be taxed under different rules, and blending them makes both harder to defend.

Export your platform history periodically rather than waiting for year-end. Accounts get restricted, platforms change, and a mid-year export you already have beats a form you are still waiting on.

Kalshi vs Polymarket: the reporting difference in one line

For a US trader, Kalshi and Polymarket US are broadly similar on the tax-paperwork front: both are CFTC-regulated, both provide year-end documents, both are visible to the IRS. The real divide is international Polymarket, which generally sends nothing and puts the entire reporting burden on you. If you want the full platform comparison beyond taxes, see Kalshi vs Polymarket.

A note on state taxes

Federal treatment is only half the picture. States vary widely: some have no income tax at all, some tax this kind of income at their regular rates, and some have their own quirks around gambling and investment income. Because prediction-market income might be characterized as trading rather than gambling, your state's treatment of investment or trading income may be what matters, not its gambling rules. The gambling tax calculator includes state rates and can give you a ballpark, but your state's specific handling of event-contract income is another thing to confirm locally.

None of this is tax advice, and the rules around event contracts are still taking shape. Verify current thresholds, forms, and classifications with the IRS or a qualified tax professional before you file.