Yes — profits from Kalshi, Polymarket, and Robinhood event contracts are taxable, even if you never receive a 1099. The catch: the IRS hasn’t said which set of tax rules applies, and the treatment you pick can change your bill by thousands of dollars and decide whether your losses count at all.
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CAPITAL GAINS
Losses offset gains, then up to $3,000/year against other income.
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ORDINARY INCOME
Taxed at your regular bracket; loss treatment is unsettled.
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SECTION 1256 (60/40)
Potentially favorable blended rate; widely seen as an aggressive position.
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GAMBLING
Losses count only if you itemize, and only up to 90% starting in 2026.
Before you read further, try the “Same Year, Four Answers” estimator below with your own numbers — then come back for the reasoning behind each one.
And here’s the question almost nobody asks until April: if you take the standard deduction, gambling treatment can mean your losses don’t count at all — you’d owe tax on money you don’t have anymore.
Same Year, Four Answers: An Illustrative Estimator
Enter one year of activity and see how the same profit-and-loss numbers turn into four very different “taxable amount” figures — not tax owed, and not a filing position. This is a rough illustration, not a calculation you can file with.
Yes, It’s Taxable (Even Without a 1099)
Start from the broadest rule in the tax code: gross income includes income “from whatever source derived,” under Internal Revenue Code Section 61. That’s the provision that catches prediction-market profits even though Congress and the IRS have never written a rule specifically for them. A missing tax form doesn’t shrink your income — it just means the IRS doesn’t have an independent copy of the number, which is a very different thing from the number not being taxable.
It’s also worth being precise about when the income arises. For most practitioners, the taxable event is settlement or sale of a contract — the moment your position resolves or you close it out — not the moment you later move money from the platform to your bank account. Leaving winnings sitting in your Kalshi, Robinhood, or Polymarket balance instead of withdrawing them doesn’t defer the tax; that’s a common and costly misunderstanding.
What Kalshi, Robinhood, and Polymarket Actually Send You
Whatever paperwork does or doesn’t show up in your account, the reporting obligation is yours. Treat every platform’s forms as a partial picture at best, and keep your own records regardless.
Kalshi. Kalshi’s own help center says tax forms are delivered electronically (through its tax-form provider, Zenwork) once you cross an IRS reporting threshold, and that if nothing shows up, it’s usually because you didn’t hit one — not that nothing is owed. Reporting across current sources is consistent on the specifics: a Form 1099-INT if you earned $10 or more in interest on cash balances, a Form 1099-MISC if referral or reward credits hit $600, and narrower 1099-B or 1099-DA reporting tied specifically to crypto or digital-asset transfers processed through Kalshi’s crypto partner. None of that is a comprehensive, trade-level form covering your net profit or loss from event-contract trading itself — Kalshi doesn’t currently issue one. You’ll see some older write-ups describe Kalshi as sending a 1099-MISC for net trading profits, or a full 1099-B covering all activity; that doesn’t match the platform’s current help-center language, so treat it as outdated and check Kalshi’s help center yourself before you file.
Robinhood. This is the one place the popular assumption is out of date. Robinhood’s own support documentation states that, starting with 2025 activity, event-contract settlement payments are reported as Miscellaneous income on your Consolidated 1099 — alongside the usual 1099-B, 1099-DIV, and 1099-INT sections for your other account activity. In other words, Robinhood’s event-contract reporting is more complete than Kalshi’s, not less. Reconcile it against your own totals anyway; support pages get updated, and aggregate 1099 lines don’t always match a trader’s own per-contract math.
Polymarket. The original, offshore, crypto-settled Polymarket issues no U.S. tax forms at all — you’re entirely responsible for your own records there. That’s shifting, though not yet fully resolved: Polymarket bought QCX, a CFTC-licensed derivatives exchange, in 2025, and relaunched a regulated U.S. product in 2026. Whether that regulated arm will eventually issue 1099s isn’t confirmed. Practically, that means “does Polymarket send a 1099” may have two different answers depending on which Polymarket product your account actually runs through — check that before you assume either way.
Exporting your own records. Do this regardless of what arrives in the mail: pull full trade history and any available P&L statement from each platform, not just at tax time but monthly, so nothing falls out of a rolling export window. One practical trap worth knowing about: Kalshi’s exported data has been reported to store dollar values in cents, not dollars — recheck the units before you total anything, or you can be off by a factor of 100.
Swipe sideways to see the full table →
| Platform | Forms you may receive | Covers event-contract trading profit? |
|---|---|---|
| Kalshi | 1099-INT (interest, $10+); 1099-MISC (rewards/referrals, $600+); limited 1099-B/1099-DA tied to crypto transfers | No |
| Robinhood | Consolidated 1099 — from 2025 activity forward, includes event-contract settlements as Miscellaneous income, plus standard 1099-B/DIV/INT sections | Yes, per current support pages |
| Polymarket (original, offshore/on-chain) | None | No — self-report |
| Polymarket US (new CFTC-regulated exchange, launched 2026) | Not yet confirmed | Unclear — check your account type |
The Four Ways It Might Be Taxed
Absent IRS guidance, practitioners fall back on frameworks built for other kinds of income. All four have real support; none has been officially blessed for event contracts. Here they are side by side, with the loss rules corrected for how each one actually works.
Swipe sideways to see the full table →
| Treatment | How gains are taxed | How losses work | Where it’s reported |
|---|---|---|---|
| Capital gains | Net gain taxed as short-term (your ordinary rate) if held a year or less — which covers nearly every event-contract position | Losses offset gains first, then up to $3,000/year against other income; the rest carries forward to future years | Form 8949 and Schedule D |
| Ordinary “other income” | Net profit taxed at your regular bracket, the same as wages | Not settled — some preparers net losses against profits within the activity; others don’t allow a deduction at all | Schedule 1, Line 8z |
| Section 1256 (60/40) | Marked-to-market at year-end; 60% of net gain taxed at long-term rates, 40% at short-term, regardless of how briefly you held the contract | Net 1256 losses are still capital losses — offset gains, then $3,000/year; a separate three-year carryback election exists, but it isn’t a free-floating deduction | Form 6781 |
| Gambling | Full winnings reported as income, at your ordinary rate, with no separate lower rate | Deductible only if you itemize on Schedule A, and only up to your winnings; a 90% cap applies starting with 2026 returns | Schedule 1 (income) plus Schedule A (losses, if itemizing) |
Capital gains
This treatment views a contract like a piece of property: you bought it, it resolved or you sold it, the difference is a gain or loss. Losses are useful here in a familiar way — first against any capital gains you have, then up to $3,000 a year against other income, with any excess carried into future tax years. Nothing about this requires itemizing. It’s the framework several CPA guides point to by default for the historic, crypto-settled Polymarket product, on the theory that outcome tokens are property in the same sense other digital assets are.
Ordinary income (Schedule 1, Line 8z)
This is the most conservative, most commonly cited approach: net profit gets reported as “other income,” often labeled something like “Kalshi prediction market earnings,” and taxed at your regular bracket — anywhere from 10% to 37%. Its appeal is simplicity and a defensible paper trail. Its real weak point is losses: there’s no settled answer for whether, or how, you can deduct a losing year under this label. Some preparers net losses against profits from the same activity before reporting the difference; others take the more conservative view that ordinary “other income” doesn’t carry a matching loss deduction at all. Don’t assume either answer without discussing it with a preparer.
Section 1256 (60/40 treatment)
Section 1256 is the one with the most attractive math if it applies: a blended rate from marking your position to market and splitting the result 60% long-term, 40% short-term, no matter how many days you actually held it. The argument for using it leans on Kalshi’s status as a CFTC-designated contract market. The argument against it is specific and technical: the CFTC’s own framework for these retail products generally treats them as swaps (a form of binary option) under the Commodity Exchange Act, and swaps are typically carved out of the “regulated futures contract” definition that Section 1256 relies on. That gap is the main reason practitioners describe this as an aggressive position for Kalshi and generally unavailable for Polymarket’s original on-chain product — though Polymarket’s new CFTC-regulated U.S. exchange, launched after its 2025 acquisition of QCX, could reopen that question for that specific product; it isn’t resolved.
The loss side also gets oversimplified. A net Section 1256 loss is still a capital loss — subject to the same $3,000-a-year limit against ordinary income as any other capital loss, though a special three-year carryback election is available for these specifically. It is not, as some shorthand versions suggest, “100% deductible against anything.” For illustration only: on a $12,000 net profit in the 24% bracket, ordinary-income treatment would tax the full amount at 24% (about $2,880), while a 60/40 split taxed at a mix of long-term and ordinary rates would generally land lower — the exact gap depends on your actual capital-gains rate and full tax picture.
Gambling
This is the framework Kalshi explicitly rejects, arguing its products are CFTC-regulated financial contracts rather than wagers — a distinction central to Kalshi’s ongoing legal fights with several states, though that fight is about market regulation, not settled by it for federal tax purposes. Under this treatment, full winnings are reported as income, and losses are deductible only if you itemize on Schedule A, and only up to the amount of your winnings. Since tax year 2026, the One Big Beautiful Bill Act (OBBBA) caps that deduction further, at 90% of losses — see the next section for what that actually does to your numbers, and our full breakdown at Break Even Gambling in 2026? You Could Still Owe the IRS.
Can You Deduct Your Losses? (And the 2026 Gambling Cap)
Most filers take the standard deduction. If your prediction-market activity is characterized as gambling and you don’t itemize, none of your losses count — only your winnings do. That can mean owing tax on money you no longer have, sometimes called “phantom income.”
Even if you do itemize, gambling-loss treatment got materially worse in 2026. Under the OBBBA, for tax years beginning after December 31, 2025, you can deduct only 90% of your gambling losses, and that reduced figure is still capped at your total winnings for the year — with no carryforward for the disallowed 10%. A trader who wins $50,000 and loses $50,000 in the same year could still owe tax on $5,000 of “phantom” income under this treatment, purely because of the 90% haircut.
Compare that with the other three treatments: capital-gains losses need no itemizing and carry forward indefinitely past the $3,000 annual cap; Section 1256 losses work the same way, plus the optional carryback. That’s the practical stakes of the classification question — the exact same trading activity can land you in very different places depending on which label applies.
There is a live effort in Congress to undo the 90% cap. On September 16, 2026, the House Ways and Means Committee voted 38–5 to advance a bill (modeled on the bipartisan FULL HOUSE Act) that would restore a full deduction for wagering losses, retroactive to the start of the 2026 tax year. That’s a real step, but it is not law: the bill still needs to clear the House Rules Committee, pass a full House floor vote — not expected before the November 2026 midterms — and then pass the Senate. Plan your 2026 filing around the law as it stands today, and revisit it if that changes. Full detail and a running status update live at Break Even Gambling in 2026? You Could Still Owe the IRS.
Polymarket’s Extra Crypto Layer
Because Polymarket has historically settled activity in crypto rather than dollars, there’s a second layer of taxable events sitting underneath the contract itself. Under general digital-asset property rules, converting between a stablecoin or other crypto asset and something else — cash, a different token, or a Polymarket position — can be its own taxable disposal, separate from whatever gain or loss the underlying contract produces. That means a single round-trip trade on Polymarket can, in principle, generate two layers of tax consequences: the result of the contract, and the result of the crypto conversions that funded or paid out from it.
Don’t assume a single settlement asset applies to your whole trading history, either — Polymarket’s deposit and settlement mechanics reportedly changed more than once during 2026, so verify what your account actually used for your specific trade dates rather than assuming it matches an older guide (including this one). For the broader mechanics of digital-asset taxation, see our Crypto 2026: Safe Investing in BTC, ETH & Altcoins guide.
Layered on top of that: Polymarket’s 2025 acquisition of QCX and its 2026 relaunch as a CFTC-regulated U.S. exchange may eventually change the tax and reporting picture for that specific, regulated product, separate from the older international, on-chain product many traders still use. Treat them as potentially different tax situations tied to the same brand.
State Taxes, Briefly
States generally follow whatever federal characterization you use, which means your choice among the four treatments above can carry through to your state return too, especially if your state taxes gambling and investment income differently. Separately, a handful of states have begun taxing prediction-market operators rather than traders: North Carolina enacted a 6% tax on operators’ net trading-fee revenue apportioned to state residents (signed July 2026), and Kentucky enacted a 14.25% excise on operators (April 2026), both effective January 1, 2027; other states, including New Jersey, have proposed similar operator-level measures. None of that changes what you personally owe on your state income tax return — though operator costs can work their way to traders indirectly through fees. Check your own state’s treatment of gambling and investment income before you file.
What to Do Right Now
The single biggest protective step here isn’t picking the “right” treatment — nobody can promise you that yet. It’s picking a defensible one and applying it the same way across all your event-contract activity for the year, rather than choosing the friendliest label position by position.
- Export full transaction and trade history from every platform you use, monthly rather than just at tax time — and double-check units (Kalshi’s exports have been reported to store values in cents, not dollars).
- Track cost basis, proceeds, and net result per contract or settlement, not just your account balance.
- Choose one of the four treatments with a reasonable basis for your situation, and use it consistently across all your event-contract activity for the year.
- For a genuinely uncertain or aggressive position — Section 1256 is the common example here — ask a tax professional whether a Form 8275 disclosure statement makes sense; it can help avoid certain accuracy-related penalties on a position with a reasonable basis, though it doesn’t guarantee the characterization itself holds up.
- If your winnings are large, you may need quarterly estimated payments to avoid an underpayment penalty — see Quarterly Estimated Taxes.
- Revisit your position if the IRS issues guidance, or if the gambling-loss cap repeal becomes law — either could change what you owe on returns you’ve already filed or are about to.
What This Isn’t
This isn’t a legality guide — prediction markets’ legal status varies by state and is being actively litigated, and none of that determines your federal tax treatment either way. It also isn’t an endorsement of Kalshi, Polymarket, Robinhood, or trading event contracts generally. And it isn’t a substitute for professional advice on your specific numbers, especially with large winnings or anything approaching a Section 1256 position. For the general capital-gains mechanics referenced throughout, see Capital Gains Tax 2026.
FAQ
Does Kalshi report winnings to the IRS?
Kalshi reports certain narrow items — interest above $10, referral or reward credits above $600, and limited crypto-transfer activity — but it does not currently send the IRS a comprehensive form covering your net event-contract trading profit. You’re still required to report that profit yourself.
Do I pay tax if I didn’t withdraw my winnings?
Generally yes. The taxable event is usually when a contract settles or you close the position, not when you move money out of the platform to your bank account.
Why didn’t I get a 1099 from Kalshi?
Per Kalshi’s own help center, that usually means you didn’t cross an IRS reporting threshold for the specific forms Kalshi issues (interest, rewards, or crypto-transfer forms) — not that your trading profit is somehow non-taxable.
Does Robinhood report event contracts to the IRS?
According to Robinhood’s own support pages, yes — starting with 2025 activity, event-contract settlement payments are reported as Miscellaneous income on your Consolidated 1099.
Can I deduct my Kalshi or Polymarket losses?
It depends entirely on which treatment applies. Capital-gains and Section 1256 treatment both allow losses (subject to the $3,000/year limit past any offsetting gains); gambling treatment allows losses only if you itemize, capped at 90% starting with 2026 returns; ordinary-income treatment’s loss rules are unsettled.
Is Kalshi or Robinhood event-contract trading “gambling” for tax purposes?
There’s no settled answer. Kalshi disputes the label and points to its CFTC designation; other practitioners note the underlying activity — a bet on a discrete future outcome — resembles wagering closely enough that some preparers use gambling treatment anyway. This is one of the genuinely open questions this guide is about.
What is Section 1256, and does it clearly apply to Kalshi?
Section 1256 is a mark-to-market tax regime with a 60/40 long-term/short-term blended rate, filed on Form 6781. It was written for regulated futures and similar contracts; the CFTC’s own framework for retail event contracts generally classifies them as swaps, which fall outside that definition, so applying Section 1256 here is considered an aggressive, unresolved position rather than a clear one.
How does the 90% gambling-loss cap work in 2026?
If your prediction-market activity is treated as gambling, you can deduct gambling losses only if you itemize, and only up to the lesser of 90% of your actual losses or your total winnings for the year — with no carryforward for the disallowed portion. A repeal effort has passed a House committee but was not law as of late September 2026.
Is Polymarket’s crypto settlement a separate taxable event?
It can be. Converting between crypto and another asset is generally its own taxable disposal under digital-asset property rules, separate from whatever the underlying contract itself produces — meaning a single trade can carry two layers of tax consequences.
What if the IRS issues guidance after I’ve already filed?
New guidance could affect the position you took on a prior return. Keep complete records of the reasoning behind your chosen treatment so you (and your preparer) can evaluate whether an amended return is warranted if the rules become clearer.
Do I owe state tax on prediction-market winnings?
Usually yes, following whatever treatment your state applies to gambling or investment income — check your specific state, since the rules aren’t uniform. Separately, a few states now tax prediction-market operators directly; that’s a different tax from anything on your personal return.
Does a missing 1099 change my audit risk?
Not necessarily in your favor. The absence of a form doesn’t remove your filing obligation, and mismatches between what a platform eventually reports and what you filed can themselves draw attention. Keeping your own detailed records is the real protection either way.
Sources and further reading:
- Thomson Reuters Tax & Accounting — IRS silence on prediction-market winnings (June 2026)
- Kalshi Help Center — What tax documentation does Kalshi provide
- Robinhood Support — Taxes and forms
- IRS — About Form 6781, Gains and Losses From Section 1256 Contracts and Straddles
- IRS — Instructions for Form 8275, Disclosure Statement
- CFTC — Kalshi designated-contract-market filing record
- Las Vegas Sun — House committee advances bill to restore full gambling-loss deduction (September 2026)
This article is for general education, not tax or legal advice, and isn’t a substitute for a licensed tax professional who knows your full situation. The IRS has issued no formal guidance on prediction-market taxation as of this writing; that guidance, platform reporting practices, and the status of the gambling-loss-cap repeal can all change, and any of those changes could affect positions taken on prior-year returns as well as future ones.
Last updated: . This is a fast-moving topic — platform tax-form policies, the 90% gambling-loss cap repeal effort, and Polymarket’s U.S. relaunch are all in motion; re-check the sources above before relying on specifics.
Daniel Hayes is the founder and sole researcher at AdvoraHQ. He covers U.S. personal finance, insurance, and consumer law — working directly from IRS publications, federal and state statutes, court opinions, and SEC filings rather than secondary summaries. His focus is the gap between what readers think they know and what the source documents actually say. Daniel is not a licensed attorney, CPA, or financial advisor; his articles are educational and not personalized advice. Reach him at Daniel.Hayes@advorahq.com.
