Key takeaway: Most jurisdictions impose tax obligations on prediction market returns. How these returns are classified—whether as capital gains, wagering proceeds, or standard income—depends on your location and trading frequency. Maintain comprehensive documentation of all 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 country-by-country examination of how tax authorities globally handle prediction market earnings.
United States
The IRS has not published targeted rules for prediction market taxation, yet standard tax law governs:
- Capital gains treatment: Should prediction market shares qualify as property (analogous to digital assets), gains face short-term capital gains tax (standard income rates, reaching 37%) when held for twelve months or less
- Wagering income: When classified as wagering activity, all returns count as standard income on Schedule 1, Line 8b. Losses may reduce other wagering returns (Schedule A) yet cannot reduce unrelated income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not—despite this, you remain obligated to disclose earnings
United Kingdom
HMRC typically categorises prediction market returns as wagering proceeds, which remain untaxed for non-professional participants. That said:
- Should trading constitute your primary livelihood, HMRC may reclassify as trading income (liable to income tax)
- USDC settlement transactions may generate separate capital gains obligations
- Those engaged in systematic trading should obtain formal HMRC advice
European Union
Member states apply divergent tax frameworks:
- Germany: Returns taxed under private asset disposal or speculative earnings rules (consult our German tax guide)
- France: Digital asset gains subject to a uniform 30% levy (PFU) encompassing prediction market returns denominated in crypto
- Netherlands: Portfolio-based wealth levy (Box 3) levied on holdings rather than realised returns
Australia
The ATO deems prediction market returns as taxable income. Frequent traders face classification as ordinary income earners. Occasional participants might claim hobbyist status, yet the ATO has tightened scrutiny of blockchain-related transactions.
Record-keeping best practices
Across all jurisdictions, preserve documentation covering:
- Each transaction: timestamp, venue, position (YES/NO), entry cost, volume
- Fund transfers with dates, times, and values
- USDC/fiat exchange rates applicable to each transaction
- Broker fee statements
- Settlement details and final payouts
PolyGram's tax export feature produces IRS 8949-compliant summaries and EU MiCA-formatted datasets directly from your transaction log. Start trading on PolyGram →