Key takeaway: Prediction market earnings face taxation across virtually all jurisdictions. The specific classification—whether as capital gains, gambling proceeds, or standard income—depends on your location and the frequency of your trading 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 nearly every case, yes. Below is a detailed examination of how tax authorities in different regions handle prediction market earnings.
United States
The IRS has not released dedicated rules for prediction market taxation, though established tax law principles apply:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains face short-term capital gains tax (taxed at ordinary rates up to 37%) when held for less than twelve months
- Gambling income: Under a gambling classification, all proceeds count as ordinary income reported on Schedule 1, Line 8b. Gambling losses may reduce gambling gains (Schedule A) but cannot offset other income sources
- Kalshi (regulated): Generates 1099 forms for US-based participants. Polymarket does not issue these forms — yet participants remain obligated to disclose earnings
United Kingdom
HMRC typically categorises prediction market earnings as betting gains, which remain untaxed for non-professional participants. Nevertheless:
- When trading constitutes your main occupation, HMRC may reclassify activity as trading income (liable to income tax)
- Stablecoin transactions (such as USDC conversions) may create separate taxable capital gains events
- Full-time market participants should request formal regulatory guidance from HMRC
European Union
Member states apply divergent tax regimes:
- Germany: Earnings taxed under private sale rules or speculative trading provisions (consult our German tax guide)
- France: Digital asset gains subject to a uniform 30% levy (PFU), encompassing prediction market settlements denominated in digital currency
- Netherlands: Applies wealth-based taxation on aggregate portfolio holdings (Box 3) instead of transaction-level gains
Australia
The ATO characterises prediction market earnings as taxable revenue. Frequent traders face ordinary income classification. Occasional participants may attempt to claim hobbyist status, though the ATO has adopted stricter enforcement toward blockchain-related ventures.
Record-keeping best practices
Across all jurisdictions, preserve documentation covering:
- Each transaction: execution date, contract name, position type (YES/NO), entry price, contract size
- Account funding and withdrawals including precise dates and values
- Stablecoin and fiat exchange rates applicable to each transaction moment
- Platform charge documentation
- Final market results and settlement payouts
PolyGram's tax export feature creates IRS 8949-ready documentation and EU MiCA-compliant exports directly from your transaction ledger. Start trading on PolyGram →