Key takeaway: Prediction market earnings are subject to taxation across most jurisdictions. How your profits are categorised—whether as capital gains, wagering income, or standard income—depends on your location and trading frequency. Maintain comprehensive documentation of all transactions without exception.
The uncomfortable question many traders avoid: are prediction market returns subject to tax? The straightforward answer: virtually in all cases, yes. Below is a comprehensive regional analysis of how tax authorities worldwide handle prediction market earnings.
United States
The IRS has not released dedicated rules for prediction market taxation, though standard tax principles remain applicable:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains face short-term capital gains taxation (standard income tax brackets, maximum 37%) when held for twelve months or less
- Wagering income: When categorised as wagering activity, all returns must be reported as standard income on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A) yet cannot reduce other taxable income
- Kalshi (regulated): Furnishes 1099 documentation to American participants. Polymarket does not—yet you remain obligated to self-report earnings
United Kingdom
HMRC typically characterises prediction market earnings as wagering returns, ordinarily tax-exempt for non-professional participants. Nevertheless:
- Should prediction market activity constitute your principal occupation, HMRC may reclassify it as professional trading income (liable to income tax)
- Stablecoin transactions (USDC conversion) might create separate taxable events
- Those engaged in full-time trading ought to obtain formal HMRC clarification
European Union
Taxation of prediction market earnings differs across EU nations:
- Germany: Returns subject to taxation as private disposition proceeds or investment income (consult our German tax guide)
- France: Stablecoin-settled returns taxed uniformly at 30% (PFU) inclusive of prediction market earnings
- Netherlands: Portfolio-based wealth assessment (Box 3) imposed on total holdings rather than realised profits
Australia
The ATO categorises prediction market earnings as taxable revenue. For those engaged in frequent trading, returns constitute standard assessable revenue. Occasional traders might pursue a hobby classification, though the ATO has adopted stricter enforcement regarding blockchain-related transactions.
Record-keeping best practices
Across all jurisdictions, document the following:
- Individual transaction details: timing, contract name, position type (YES/NO), entry cost, volume
- Account funding and withdrawals including precise dates and sums
- Stablecoin and fiat exchange rates applicable to each transaction moment
- Invoices and receipts for all platform charges
- Settlement information and final payout receipts
PolyGram's tax export feature produces IRS 8949-compliant summaries and EU MiCA-formatted exports instantaneously from your transaction ledger. Start trading on PolyGram →