Key takeaway: Prediction market earnings are subject to tax across most jurisdictions. The specific treatment—whether as capital gains, wagering income, or standard income—depends on your location and the frequency of your activity. Comprehensive documentation of all transactions is essential.
The uncomfortable reality many traders face: are prediction market returns liable for taxation? The answer is straightforward: in virtually all cases, yes. Below is a comprehensive regional assessment of how tax authorities globally approach prediction market earnings.
United States
The IRS has not released dedicated rules for prediction market taxation, though established tax law remains applicable:
- Capital gains treatment: Should prediction market shares be classified as property (similar to digital assets), gains are taxed under short-term capital gains rules (standard income rates, maximum 37%) when positions close within twelve months
- Wagering income: When treated as wagering activity, all proceeds count as taxable ordinary income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A) though losses cannot reduce other taxable income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not—yet filers remain obligated to self-report all earnings
United Kingdom
HMRC typically characterises prediction market earnings as wagering proceeds, which remain untaxed for non-professional participants. That said:
- Should trading represent your primary occupation, HMRC may reclassify activity as commercial trading income (liable to income tax)
- USDC transactions and fiat conversions may generate separate taxable events under capital gains rules
- Those engaged in full-time trading should obtain formal HMRC clarification
European Union
Member states implement divergent tax frameworks:
- Germany: Earnings subject to tax as private asset sales or trading gains (consult our German tax guide)
- France: Crypto-settled gains face a uniform 30% levy (PFU) covering prediction market positions denominated in digital currency
- Netherlands: Annual wealth assessment (Box 3) on total portfolio rather than transaction-level realised gains
Australia
The ATO deems prediction market earnings as taxable revenue. Those engaged in frequent trading face classification as ordinary income earners. Occasional participants may attempt to claim hobbyist status; however, the ATO has grown more vigilant regarding blockchain-related income streams.
Record-keeping best practices
Across all jurisdictions, preserve documentation covering:
- All transactions: execution date, contract name, position type (YES/NO), entry price, volume
- Account movements including deposit/withdrawal times and corresponding values
- Exchange rates for USDC and fiat conversions at each transaction moment
- Documentation of all platform costs and fees
- Settlement data and corresponding distribution receipts
PolyGram's tax export feature creates IRS 8949-formatted summaries and EU MiCA-compliant datasets directly from your activity log. Start trading on PolyGram →