Key takeaway: Earnings from prediction markets face taxation across virtually all jurisdictions. How they are classified—whether as capital gains, gambling revenue, or standard income—depends on your location and the frequency of your activity. Maintain comprehensive documentation of all transactions without exception.
The uncomfortable reality: are prediction market returns subject to tax? The answer is straightforward: in the vast majority of cases, yes. Below is a comprehensive regional analysis of how tax authorities globally handle prediction market earnings.
United States
The IRS has yet to publish definitive rules on prediction market taxation, though established tax principles do apply:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), returns face short-term capital gains taxation (taxed at standard income rates, reaching 37%) when held for less than twelve months
- Gambling income: When classified as gambling activity, all returns become taxable ordinary income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A), though losses cannot reduce other income categories
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not issue these forms — yet traders retain a legal obligation to self-report
United Kingdom
HMRC typically characterises prediction market returns as betting winnings, which remain untaxed for amateur participants. Nevertheless:
- Should trading constitute your primary livelihood, HMRC may reclassify activity as professional trading income (subject to standard income taxation)
- Stablecoin conversions (such as USDC transactions) may generate separate taxable events on capital appreciation
- Those engaged in full-time trading should request formal guidance from HMRC
European Union
Across EU nations, prediction market taxation diverges significantly:
- Germany: Returns treated as private asset disposals or speculative gains (consult our German tax guide)
- France: Stablecoin-denominated gains subject to a uniform 30% levy (PFU) encompassing prediction market payouts in digital currency
- Netherlands: Annual wealth assessment on total portfolio holdings (Box 3) supersedes taxation of actual realised profits
Australia
The ATO categorises prediction market returns as income subject to assessment. For those engaged in frequent trading, returns qualify as standard taxable income. Those trading infrequently might attempt to claim hobbyist status, though the ATO has demonstrated heightened scrutiny regarding blockchain-related ventures.
Record-keeping best practices
Across all jurisdictions, preserve documentation covering:
- Individual transactions: execution date, specific market, position type (YES/NO), entry price, contract volume
- Account funding and withdrawals including precise timestamps and transfer amounts
- Stablecoin/fiat exchange rates applicable at each transaction moment
- Platform charge invoices and receipts
- Final market outcomes and settlement payouts received
PolyGram's tax export feature automatically produces IRS 8949-ready documentation and EU MiCA-compliant exports derived from your complete transaction record. Start trading on PolyGram →