Key takeaway: Prediction market earnings face taxation across virtually all jurisdictions. How they are categorised—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: are prediction market returns subject to tax? The answer is straightforward: in nearly all cases, yes. Below is a comprehensive overview of how tax authorities in different regions handle prediction market earnings.
United States
The IRS has not released targeted rules for prediction market taxation, yet standard tax principles remain in force:
- Capital gains treatment: When prediction market shares qualify as assets (similar to digital currencies), gains face short-term capital gains tax (taxed at regular income rates, reaching 37%) if disposed of within twelve months
- Wagering income: Under wagering classification, all gains count as standard income reported on Schedule 1, Line 8b. Offsetting losses against gains is permitted (Schedule A), though losses cannot reduce other taxable income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not—yet reporting obligations remain legally binding
United Kingdom
HMRC typically categorises prediction market earnings as wagering returns, which remain untaxed for non-professional participants. Nevertheless:
- When trading constitutes your principal occupation, HMRC may reclassify returns as trading profits (liable to income tax)
- USDC conversion transactions may generate separate capital gains liabilities
- Those engaged in full-time trading should obtain formal HMRC guidance
European Union
Member states apply divergent taxation frameworks:
- Germany: Returns taxed under private asset disposal rules or income from speculation (consult our German tax guide)
- France: Digital asset gains subject to a uniform 30% levy (PFU), encompassing prediction market returns denominated in crypto
- Netherlands: Levy imposed on total portfolio holdings (Box 3) rather than realised returns
Australia
The ATO classifies prediction market earnings as taxable profit. Frequent traders face assessment as ordinary business income. Occasional participants may attempt to claim hobbyist status, though the ATO has adopted stricter enforcement regarding crypto-aligned ventures.
Record-keeping best practices
Across all jurisdictions, preserve documentation for:
- Each transaction: execution date, contract, position (YES/NO), entry price, size
- Account funding and withdrawals including precise timing and volume
- Exchange rates between USDC and fiat currency at each transaction moment
- Platform charge statements
- Contract settlement details and received proceeds
PolyGram's tax export feature creates IRS 8949-ready documentation and EU MiCA-format datasets directly from your transaction log. Start trading on PolyGram →