Key takeaway: Most jurisdictions impose tax obligations on prediction market earnings. The specific treatment—whether as capital gains, gambling revenue, or standard income—depends on your location and trading frequency. Maintaining comprehensive documentation of all transactions is essential.
The uncomfortable reality: are prediction market returns subject to taxation? The straightforward response: in virtually all cases, yes. Below is a comprehensive regional analysis of how tax authorities globally handle prediction market earnings.
United States
The IRS has not released targeted rules on prediction market taxation, though established tax law principles govern the treatment:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains are liable to short-term capital gains tax (taxed at regular income rates, maximum 37%) when held for less than twelve months
- Gambling income: Where classified as wagering activity, all proceeds count as taxable ordinary income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A), though losses cannot reduce other taxable income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not issue such forms — yet you remain obligated to disclose earnings
United Kingdom
HMRC ordinarily categorises prediction market earnings as betting gains, which remain untaxed for non-professional participants. Nevertheless:
- Should trading constitute your principal occupation, HMRC may reclassify it as professional trading income (subject to income tax)
- The digital currency dimension (USDC settlement) may generate separate taxable events on conversion
- Those engaged in trading professionally ought to obtain formal HMRC clarification
European Union
Member states apply differing tax frameworks to prediction market returns:
- Germany: Returns taxed under rules for asset disposals or speculative transactions (refer to our German tax guide)
- France: Digital asset gains subject to uniform 30% levy (PFU) covering prediction market proceeds denominated in crypto
- Netherlands: Portfolio-based wealth assessment (Box 3) applied instead of transaction-level gain realisation
Australia
The ATO classifies prediction market earnings as taxable income. Frequent traders face assessment of earnings as standard income. Occasional participants might attempt to claim hobbyist status, though the ATO has grown stricter regarding blockchain-related ventures.
Record-keeping best practices
Across all regions, preserve documentation covering:
- Each transaction: timestamp, contract identifier, position type (YES/NO), entry price, size
- Funding transfers and withdrawals with precise timing and values
- USDC-to-fiat exchange rates applicable at each transaction moment
- Platform charges and expense documentation
- Settlement information and final payout details
PolyGram's tax export feature produces IRS 8949-formatted statements and EU MiCA-compliant exports directly from your transaction ledger. Start trading on PolyGram →