Key takeaway: Prediction market earnings are subject to taxation across nearly all jurisdictions. How they are classified—whether as capital gains, gambling proceeds, or standard income—depends on your location and the frequency of your trading activity. Maintaining comprehensive documentation of all transactions is essential.
The uncomfortable reality: are prediction market gains liable for tax? The answer is straightforward: in virtually every case, yes. Below is a detailed regional analysis of how tax authorities globally approach prediction market earnings.
United States
The IRS has not released targeted rules for prediction markets, yet conventional tax principles remain in effect:
- Capital gains treatment: Should prediction market shares qualify as property (comparable to digital assets), gains face short-term capital gains taxation (standard income tax brackets, up to 37%) when held for twelve months or less
- Gambling income: When categorised 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 taxable income
- Kalshi (regulated): Generates 1099 forms for American participants. Polymarket does not—yet you remain obligated to disclose earnings
United Kingdom
HMRC typically categorises prediction market earnings as gambling winnings, which remain untaxed for amateur participants. That said:
- Should prediction market activity constitute your primary occupation, HMRC may reclassify earnings as trading income (liable to income tax)
- Stablecoin conversions (such as USDC transactions) may generate separate capital gains liabilities
- Those engaged in systematic trading ought to obtain formal regulatory and legal guidance
European Union
Member states apply divergent tax frameworks:
- Germany: Earnings taxed under private asset disposal or speculative trading rules (consult our German tax guide)
- France: Digital asset gains face a uniform 30% levy (PFU) covering prediction market settlements denominated in crypto
- Netherlands: Portfolio-based wealth taxation (Box 3) assessed on holdings rather than realised transaction profits
Australia
The ATO deems prediction market earnings as taxable revenue. Frequent traders face ordinary income treatment. Occasional participants may attempt to claim hobbyist status, though the ATO has adopted stricter enforcement regarding blockchain-linked trading.
Record-keeping best practices
Across all regions, document the following:
- All transactions: execution date, contract name, position type (YES/NO), entry price, volume
- Account movements including dates, times, and corresponding sums
- Stablecoin and fiat exchange rates applicable at each transaction moment
- Platform charge documentation
- Settlement information and final payout figures
PolyGram's tax export feature produces IRS 8949-compliant documentation and EU MiCA-formatted datasets directly from your transaction ledger. Start trading on PolyGram →