U.S. Prediction Markets Face Tax Uncertainty on $24 Billion Monthly Trading
Updated
Updated · Bipartisan Policy Center · Aug 17
U.S. Prediction Markets Face Tax Uncertainty on $24 Billion Monthly Trading
2 articles · Updated · Bipartisan Policy Center · Aug 17
Summary
$24 billion in monthly U.S. prediction-market trading as of April 2026 is colliding with unresolved tax treatment, leaving traders and operators unsure whether winnings are gambling income, capital gains or Section 1256 contract income.
That ambiguity stems from active fights over who regulates Kalshi and Polymarket: states say many contracts are gambling, while the CFTC says federal commodities law governs and has sued to block state cease-and-desist orders.
The tax stakes differ sharply. Gambling winnings can trigger 24% withholding on payouts of $5,000 or more, and under the new 90% loss-deduction rule a trader who wins $10,000 and loses $10,000 could still owe tax on $1,000.
Polymarket adds another layer because its USDC-based trading may create two or more taxable events, complicating IRS reporting and potentially widening noncompliance risks.
Court rulings will determine not only whether states gain authority over these markets, but also whether prediction contracts keep potentially more favorable tax treatment than traditional sports betting.