Key takeaway: Most countries impose tax obligations on prediction market earnings. The specific treatment—whether as capital gains, gambling proceeds, or standard income—depends on your location and trading behaviour. 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 comprehensive overview of how tax authorities across different regions handle prediction market earnings.
United States
The IRS has not released targeted rules for prediction markets, though established tax doctrine governs treatment:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains are taxed at short-term capital gains rates (standard income brackets, maximum 37%) when disposed of within twelve months
- Gambling income: Where classified as wagering activity, all proceeds count as taxable ordinary income on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A), though deductions cannot reduce other income categories
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not—yet filers retain a reporting obligation regardless
United Kingdom
HMRC ordinarily categorises prediction market earnings as gambling returns, which remain untaxed for those betting recreationally. That said:
- Where trading constitutes your primary occupation, HMRC may reclassify proceeds as trading income (liable to income tax)
- Stablecoin transactions (such as USDC redemptions) may generate separate taxable events under capital gains rules
- Those operating on a professional basis should request formal HMRC ruling
European Union
Member states apply differing tax frameworks:
- Germany: Returns taxed under private asset disposal or speculative trading provisions (consult our German tax guide)
- France: Digital asset gains face a uniform 30% levy (PFU) inclusive of prediction market returns denominated in crypto
- Netherlands: Applies portfolio-based wealth assessment (Box 3) based on holdings rather than realised proceeds
Australia
The ATO deems prediction market returns to be taxable revenue. Frequent traders face ordinary income classification. Occasional participants might attempt hobby-loss arguments, though the ATO has adopted stricter enforcement regarding blockchain-related trading.
Record-keeping best practices
Across all jurisdictions, document the following:
- Each transaction: timestamp, contract identifier, position type (YES/NO), entry price, volume
- Inflows and outflows with precise timing and value
- Exchange rates for USDC and fiat conversions at each trade execution
- Proof of platform charges paid
- Final settlement details and received distributions
PolyGram's tax export feature produces IRS 8949-compliant summaries and EU MiCA-formatted datasets directly from your activity ledger. Start trading on PolyGram →