Key takeaway: Prediction market earnings are subject to taxation across virtually all jurisdictions. How authorities classify these profits—whether as capital gains, gambling income, or standard income—depends on your location and trading frequency. Comprehensive documentation of all transactions is essential.
The uncomfortable reality: are prediction market returns liable for tax? The answer is straightforward: in nearly all cases, yes. Below is a comprehensive regional analysis of how tax authorities globally approach prediction market profit taxation.
United States
The IRS has not released targeted rules for prediction market taxation, though established tax law principles govern the treatment:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains are taxed as short-term capital gains (at standard income tax rates, up to 37%) when held for less than twelve months
- Gambling income: When classified as gambling, all winnings become taxable as ordinary income via Schedule 1, Line 8b. Gambling losses may reduce winnings (Schedule A) though they cannot reduce other types of income
- Kalshi (regulated): Generates 1099 forms for American participants. Polymarket does not issue these—yet you remain obligated to self-report your earnings
United Kingdom
HMRC typically characterises prediction market earnings as gambling winnings, which remain untaxed for non-professional participants. Nevertheless:
- Should trading constitute your principal occupation, HMRC may reclassify it as professional trading income (liable to income tax)
- Stablecoin transactions (such as USDC sales) may create separate taxable events
- Those engaged in systematic trading should consult HMRC directly
European Union
Member states within the EU apply differing tax frameworks:
- Germany: Earnings taxed as either private asset disposals or speculative gains (consult our German tax guide)
- France: Stablecoin-denominated gains subject to a flat 30% levy (PFU) covering prediction market settlements in digital currencies
- Netherlands: Assessed under wealth taxation on aggregate holdings (Box 3) rather than transaction-level realised gains
Australia
The ATO classifies prediction market earnings as taxable income. Frequent traders face ordinary income classification. Occasional participants may attempt to claim hobbyist status, yet the ATO has adopted stricter enforcement regarding blockchain-related trading.
Record-keeping best practices
Irrespective of your location, preserve documentation for:
- All transactions: entry date, contract name, position (YES/NO), entry price, share count
- Account funding and withdrawals including dates and amounts
- Stablecoin and fiat exchange rates applicable to each transaction
- Platform charges and expense receipts
- Market settlement details and corresponding payouts
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-compliant exports directly from your transaction ledger. Start trading on PolyGram →