Key takeaway: Most countries impose tax obligations on prediction market earnings. The specific tax category — whether treated as capital gains, gambling revenue, or standard income — depends on your location and trading frequency. Comprehensive documentation of all transactions is essential.
The topic many prefer to avoid: are prediction market returns subject to taxation? The straightforward answer: in virtually all cases, yes. Below is a detailed country-by-country analysis of how tax authorities globally handle prediction market earnings.
United States
The IRS has not released targeted rules for prediction markets, though established tax principles still apply:
- Capital gains treatment: Should prediction market shares qualify as assets (similar to digital currencies), gains face short-term capital gains tax (taxed at regular income rates, reaching 37%) when shares are disposed of within twelve months
- Gambling income: When treated as gambling activity, all proceeds count as ordinary income reported on Schedule 1, Line 8b. Gambling losses may reduce gambling gains (Schedule A) but cannot reduce other types of income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not — nevertheless, you remain obligated to declare earnings
United Kingdom
The UK tax authority (HMRC) typically views prediction market earnings as betting winnings, which remain untaxed for non-professional participants. That said:
- When prediction market activity constitutes your main occupation, HMRC may reclassify it as trading revenue (liable to income tax)
- Stablecoin conversions (such as USDC exchanges) might trigger separate capital gains obligations
- Those operating as professional traders ought to request formal guidance from HMRC
European Union
Member states within the EU apply different tax frameworks:
- Germany: Earnings treated as private asset sales or investment income (consult our German tax guide)
- France: Digital asset gains subject to a uniform 30% levy (PFU), encompassing prediction market earnings denominated in digital currencies
- Netherlands: Annual wealth assessment on holdings (Box 3) instead of gains realised through sales
Australia
Australia's tax authority (ATO) classifies prediction market earnings as taxable revenue. Frequent traders face taxation of earnings as standard income. Those who trade infrequently might seek hobbyist classification, though the ATO has grown more rigorous regarding blockchain-related ventures.
Record-keeping best practices
Across all jurisdictions, you should retain documentation covering:
- All transactions: timing, specific market, contract direction (YES/NO), entry and exit prices, contract volume
- Account funding and withdrawals including exact dates and sums
- Exchange rates between USDC and fiat currency applicable to each transaction moment
- Invoices and receipts for platform charges
- Final market determinations and settlement payouts
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-formatted data exports instantly based on your transaction log. Start trading on PolyGram →