Key takeaway: Earnings from prediction markets face tax obligations across virtually all jurisdictions. How those earnings are classified—whether as capital gains, wagering income, or standard income—depends on your location and the frequency of your trading activity. Maintaining comprehensive documentation of all transactions is essential.
The uncomfortable reality many traders avoid: are prediction market gains subject to taxation? The answer is straightforward: in nearly every case, yes. Below is a detailed country-by-country examination of how tax authorities worldwide approach prediction market earnings.
United States
Whilst the IRS has refrained from publishing explicit rules on prediction market earnings, established tax principles still govern:
- Capital gains treatment: Should prediction market positions qualify as property assets (comparable to digital currencies), gains face short-term capital gains taxation (taxed at marginal rates, reaching 37%) when positions close within twelve months
- Wagering income: When classified as wagering activity, all gains count as ordinary taxable income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (via Schedule A), though losses cannot reduce other income categories
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not—yet you remain obligated to self-report all earnings
United Kingdom
HMRC customarily views prediction market earnings as wagering proceeds, which remain untaxed for amateur participants. That said:
- Should your trading constitute your primary occupation, HMRC may reclassify it as professional trading income (subject to standard income taxation)
- Stablecoin transactions (such as USDC conversions) may trigger separate taxable events under capital gains rules
- Those engaged in full-time trading ought to obtain formal HMRC clarification
European Union
Across the EU, tax rules differ substantially between nations:
- Germany: Earnings taxed under rules for private asset dispositions or speculative trading (consult our German tax guide)
- France: Stablecoin-settled gains face a uniform 30% levy (PFU) applicable to prediction market transactions denominated in digital currency
- Netherlands: Portfolio-based wealth taxation (Box 3) assessed on holdings rather than realised transaction profits
Australia
Australia's ATO classifies prediction market earnings as taxable revenue. Active traders face assessment as ordinary income earners. Those trading infrequently might attempt to claim hobby status, though the ATO has grown stricter when evaluating blockchain-related ventures.
Record-keeping best practices
Across all regions, preserve documentation covering:
- All transactions: execution date, contract name, position type (YES or NO), entry price, position size
- Funding movements with precise dates and corresponding amounts
- Stablecoin and fiat exchange rates recorded at each transaction moment
- Platform charge statements
- Final contract outcomes and settlement proceeds
PolyGram's tax export feature creates IRS 8949-formatted summaries and EU MiCA-compliant exports straight from your transaction ledger. Start trading on PolyGram →