Key takeaway: In most countries, earnings from prediction markets are subject to tax. How they are taxed — whether as capital gains, gambling proceeds, or standard income — depends on your location and how frequently you trade. Maintain comprehensive documentation of all your transactions without exception.
The uncomfortable reality many traders face: are prediction market returns subject to taxation? The answer is straightforward: in virtually all cases, yes. Below is a comprehensive guide examining how tax authorities across different regions handle prediction market earnings.
United States
Although the IRS has not released formal directives specifically addressing prediction markets, standard tax principles govern these activities:
- 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 standard income rates, up to 37%) when held for less than twelve months
- Gambling income: Should the activity be classified as gambling, all proceeds count as taxable ordinary income reported on Schedule 1, Line 8b. Gambling losses may reduce gambling gains (Schedule A) but cannot reduce other types of income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not — nevertheless, you remain obligated to declare your earnings
United Kingdom
The UK tax authority typically characterises prediction market returns as betting winnings, which remain untaxed for casual participants. That said:
- Should prediction market activity constitute your principal occupation, the authority may reclassify it as professional trading income (liable to income tax)
- Transactions involving stablecoins (USDC conversion) may generate separate taxable events
- Those engaged in professional trading ought to obtain formal guidance from tax authorities
European Union
Across the EU, tax obligations differ significantly between countries:
- Germany: Returns are taxed either as private asset sales or speculative gains (consult our German tax guide)
- France: Stablecoin-denominated gains are taxed uniformly at 30% (PFU), encompassing prediction market returns settled in digital currency
- Netherlands: Imposes a wealth tax on total portfolio holdings (Box 3) instead of actual profit realisations
Australia
Australian tax authorities classify prediction market returns as taxable revenue. For those who trade regularly, such returns constitute standard assessable income. Occasional traders may attempt to claim hobbyist status, though authorities have grown considerably more vigilant regarding crypto-related ventures.
Record-keeping best practices
Irrespective of your location, preserve documentation covering:
- Each transaction: execution date, contract name, position (YES/NO), entry price, volume
- Account funding and withdrawals including precise timing and dollar amounts
- Stablecoin/fiat exchange rates applicable to each individual transaction
- Platform charge invoices and receipts
- Contract settlement information and final payout values
PolyGram's tax export feature produces IRS 8949-compliant documentation and EU MiCA-formatted exports instantly based on your complete trading record. Start trading on PolyGram →