Key takeaway: Prediction market earnings face taxation across nearly all jurisdictions. How your gains are classified — whether as capital gains, gambling proceeds, or standard income — hinges on local law and your personal trading activity. Comprehensive documentation of all transactions is essential.
The uncomfortable reality: are prediction market returns subject to tax? The answer is almost universally affirmative. Below is a comprehensive regional analysis of how tax authorities globally handle prediction market earnings.
United States
Whilst the IRS has not released targeted rules for prediction markets, established tax doctrine governs the treatment:
- Capital gains treatment: Should prediction market shares qualify as property (comparable to digital assets), gains incur short-term capital gains tax (taxed at ordinary rates, up to 37%) when disposed of within twelve months
- Gambling income: When classified as gambling, all returns constitute taxable ordinary income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (via Schedule A), though losses cannot reduce other taxable income
- Kalshi (regulated): Sends 1099 documentation to US participants. Polymarket does not issue such forms — yet you remain obligated to self-report all gains
United Kingdom
HMRC ordinarily categorises prediction market returns as gambling proceeds, which remain untaxed for non-professional participants. Nevertheless:
- Should prediction market activity constitute your primary occupation, HMRC may reclassify it as trading income (liable to income tax)
- Conversion of USDC to sterling or other fiat may create separate capital gains events
- Those engaged professionally should obtain formal HMRC ruling
European Union
Member states adopt divergent approaches to prediction market taxation:
- Germany: Earnings taxed as realisation gains or speculative trading income (consult our German tax guide)
- France: Crypto-settled gains subject to a uniform 30% levy (PFU), encompassing prediction market earnings denominated in digital currency
- Netherlands: Applies wealth-based taxation on total holdings (Box 3) in lieu of transaction-level gains
Australia
The ATO deems prediction market returns to be assessable income. Frequent traders face classification as ordinary income earners. Occasional traders may attempt to claim hobbyist status; however, the ATO has adopted a stricter stance toward blockchain-related ventures in recent years.
Record-keeping best practices
Irrespective of your location, preserve documentation covering:
- Each transaction: execution date, market identifier, position (YES or NO), entry cost, volume
- Deposits and withdrawals inclusive of precise timing and monetary value
- USDC and fiat exchange rates applicable at each transaction moment
- Platform charge invoices and receipts
- Final market outcomes and corresponding settlement amounts
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-compliant CSV files directly from your transaction ledger. Start trading on PolyGram →