Key takeaway: Most jurisdictions levy tax on prediction market earnings. How those earnings are categorised—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: are prediction market returns subject to taxation? The answer is straightforward: in virtually all cases, yes. Below is a comprehensive regional analysis of how tax authorities globally approach prediction market earnings.
United States
The IRS has not published targeted rules for prediction markets, yet standard tax doctrine governs:
- Capital gains treatment: Should prediction market shares qualify as property (akin to digital assets), gains face short-term capital gains tax (standard income rates, reaching 37%) when held fewer than twelve months
- Wagering income: When treated as wagering activity, all returns count as ordinary income reported on Schedule 1, Line 8b. Losses may offset returns (Schedule A) but cannot reduce other earnings
- Kalshi (regulated): Sends 1099 documentation to US participants. Polymarket does not—yet you remain obligated to disclose earnings
United Kingdom
HMRC typically views prediction market earnings as wagering proceeds, which remain untaxed for amateur participants. Nevertheless:
- Should trading constitute your primary occupation, HMRC may reclassify as trading revenue (liable to income tax)
- Blockchain components (USDC settlement) may trigger separate capital gains obligations
- Those operating commercially ought to consult HMRC directly
European Union
Member states apply divergent tax frameworks:
- Germany: Earnings taxed as private asset disposals or speculative proceeds (consult our German tax guide)
- France: Blockchain-settled earnings face a uniform 30% levy (PFU) on all digital asset gains
- Netherlands: Portfolio wealth tax (Box 3) assessed on holdings rather than realised returns
Australia
The ATO classifies prediction market earnings as taxable revenue. Frequent traders face ordinary income classification. Occasional participants might attempt hobbyist exemptions, though the ATO has grown more rigorous regarding blockchain-related ventures.
Record-keeping best practices
Across all regions, document:
- Each transaction: timestamp, contract name, position (YES/NO), entry price, volume
- Fund movements including dates, times, and values
- Exchange rates for USDC/fiat conversions at execution
- Invoices for platform charges
- Contract settlement details and redemption values
PolyGram's tax export feature produces IRS 8949-ready reports and EU MiCA-compliant exports straight from your activity log. Start trading on PolyGram →