Key takeaway: In most countries, gains from prediction market trading incur tax obligations. The specific tax category—whether treated as capital gains, gambling proceeds, or standard income—depends on your location and trading frequency. Comprehensive documentation of all transactions is essential.
The uncomfortable reality: are prediction market returns subject to taxation? The answer is straightforward: in virtually all cases, yes. Below is a detailed examination of how tax authorities across different regions classify and handle prediction market earnings.
United States
The IRS has not released formal guidance specific to prediction markets, though standard tax principles govern these activities:
- Capital gains treatment: When prediction market positions are classified as assets (similar to digital currencies), returns qualify as short-term capital gains (taxed at standard income rates, up to 37%) if disposed of within twelve months
- Gambling income: Under gambling classification, all returns must be reported as ordinary income via 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 issue such forms — yet participants remain obligated to self-report all earnings
United Kingdom
HMRC typically characterises prediction market returns as gambling winnings, which remain untaxed for amateur participants. Notable exceptions include:
- When trading constitutes your principal occupation, HMRC may reclassify activity as trading income (subject to income tax assessment)
- Stablecoin transactions (USDC conversions) may generate separate taxable events
- Those operating as professional traders should obtain formal HMRC clarification
European Union
Across the EU, tax rules differ substantially between jurisdictions:
- Germany: Returns taxed under private asset disposal or speculative trading rules (consult our German tax guide)
- France: Cryptocurrency-denominated gains subject to a uniform 30% levy (PFU), encompassing prediction market positions settled in digital assets
- Netherlands: Annual wealth assessment on aggregate holdings (Box 3) rather than transaction-based taxation
Australia
The ATO categorises prediction market returns as taxable revenue. Frequent traders face assessment as ordinary income recipients. While occasional participants might attempt hobbyist classification, the ATO has adopted a stricter stance regarding crypto-related ventures.
Record-keeping best practices
Across all jurisdictions, preserve documentation covering:
- All transactions: execution date, contract name, position type (YES/NO), entry price, volume
- Fund transfers including dates, times, and values
- Exchange rates for USDC and fiat conversions applicable at each transaction moment
- Platform cost documentation
- Contract settlement details and received proceeds
PolyGram's tax export functionality produces IRS 8949-compliant summaries and EU MiCA-formatted exports directly from your activity log. Start trading on PolyGram →