Key takeaway: Prediction market earnings face taxation across virtually all jurisdictions. How they are categorised—whether as capital gains, wagering proceeds, or standard income—hinges on your location and the frequency of your activity. Comprehensive documentation of all transactions is essential.
The uncomfortable reality many traders avoid: are prediction market returns subject to tax? The answer is straightforward: in the vast majority of cases, yes. Below is a thorough examination of how tax authorities in different regions approach prediction market earnings.
United States
Whilst the IRS has not published dedicated rules for prediction markets, established tax doctrine governs treatment:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains are subject to short-term capital gains rates (ordinary income brackets, reaching 37%) when held for less than twelve months
- Gambling income: Where classified as wagering activity, all returns must be reported as ordinary income via Schedule 1, Line 8b. Offsetting losses against returns is permitted (Schedule A), though losses cannot reduce other taxable income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not—yet you remain obligated to self-report
United Kingdom
The Revenue typically characterises prediction market returns as wagering proceeds, which remain untaxed for hobbyist participants. Nevertheless:
- Should trading constitute your primary occupation, the Revenue may reclassify returns as business income (subject to standard income taxation)
- Stablecoin transactions (USDC conversions) may generate separate capital gains liabilities
- Those operating as professionals ought to obtain formal clearance from the Revenue
European Union
Member states apply divergent approaches to prediction market returns:
- Germany: Returns treated as private asset disposals or speculative trading income (consult our German tax guide)
- France: Stablecoin-denominated returns face a uniform 30% levy (PFU) inclusive of prediction market settlements
- Netherlands: Portfolio-based wealth levy (Box 3) applied to holdings rather than transaction gains
Australia
The ATO categorises prediction market returns as taxable income. Frequent traders face ordinary income classification. Occasional participants may attempt to claim hobbyist status, though the ATO has adopted a tougher stance toward blockchain-related ventures in recent years.
Record-keeping best practices
Irrespective of your jurisdiction, preserve documentation covering:
- All transactions: execution date, contract, position (YES/NO), entry price, volume
- Fund transfers including precise timing and monetary amounts
- Stablecoin-to-fiat exchange rates applicable at each transaction moment
- Exchange charge confirmations
- Contract settlement details and received payouts
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-compliant exports directly from your activity log. Start trading on PolyGram →