Key takeaway: Most jurisdictions treat prediction market earnings as taxable income. How they are classified — whether as capital gains, gambling proceeds, or standard income — depends on your location and how frequently you trade. Maintain comprehensive documentation of all your transactions without exception.
The uncomfortable reality many traders avoid: 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 handle prediction market earnings.
United States
The IRS has not released targeted rules for prediction markets, though established tax law governs these activities:
- Capital gains treatment: Should prediction market positions qualify as property (similar to cryptocurrency), gains face short-term capital gains rates (matching your marginal tax bracket, up to 37%) when held for less than twelve months
- Gambling income: When classified as gambling, all proceeds count as taxable ordinary income reported on Schedule 1, Line 8b. Gambling losses may reduce gambling winnings (Schedule A) yet cannot reduce other taxable income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not — nevertheless, you remain obligated to self-report
United Kingdom
HMRC typically characterises prediction market earnings as gambling winnings, which remain untaxed for those betting recreationally. That said:
- Should trading represent your principal occupation, HMRC may reclassify it as trading income (liable to income tax)
- The cryptocurrency dimension (converting USDC to fiat) may generate separate taxable events
- Those engaged in professional trading ought to obtain formal HMRC clarification
European Union
Taxation across the EU differs according to each nation's rules:
- Germany: Earnings taxed as private asset disposals or speculative trading income (consult our German tax guide)
- France: Cryptocurrency gains subject to a uniform 30% rate (PFU) covering prediction market payouts denominated in crypto
- Netherlands: Portfolio-based wealth levy (Box 3) applied to holdings rather than actual profits realised
Australia
The ATO categorises prediction market returns as assessable income. For those engaged in regular trading, earnings constitute ordinary income. Occasional participants might seek hobbyist classification, though the ATO has grown more rigorous regarding crypto-related ventures.
Record-keeping best practices
Across all regions, document the following:
- Each transaction: timestamp, contract name, position type (YES/NO), entry price, volume
- Account funding and withdrawals including precise dates and values
- Exchange rates for USDC and fiat conversions at each transaction moment
- Documentation of all charges and fees
- Settlement information and final payout details
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-formatted exports directly from your activity log. Start trading on PolyGram →