Key takeaway: In the vast majority of countries, earnings from prediction markets are subject to taxation. How those earnings are classified — whether as capital gains, gambling revenue, or standard income — depends on your location and how frequently you trade. Maintaining comprehensive records of all your transactions is essential.
It's a question many traders avoid: are prediction market returns subject to tax? The straightforward answer: in nearly all cases, yes. Below is a comprehensive overview of how tax authorities across different regions handle prediction market earnings.
United States
The IRS has not released formal rules targeting prediction markets specifically, though established tax principles still apply:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains face short-term capital gains taxation (taxed at your marginal rate, reaching 37% at the highest bracket) when held for under twelve months
- Gambling income: Where classified as gambling, all winnings become taxable ordinary income reported on Schedule 1, Line 8b. Gambling losses can reduce gambling winnings (via Schedule A) but cannot reduce other types of income
- Kalshi (regulated): Generates 1099 documents for American participants. Polymarket does not — yet you remain obligated to declare your earnings
United Kingdom
The UK tax authority (HMRC) typically views prediction market earnings as gambling winnings, which carry no tax liability for casual bettors. That said:
- Should prediction market activity represent your main occupation, HMRC could reclassify it as trading income (subject to income tax rates)
- Stablecoin transactions (such as USDC conversions) may generate separate taxable capital gains events
- Those engaged in professional-level activity should request formal guidance from HMRC
European Union
Member states within the EU apply differing tax frameworks:
- Germany: Gains taxed under private asset disposal rules or speculative income provisions (see our German tax guide)
- France: Stablecoin-settled gains subject to a uniform 30% levy (PFU), which encompasses prediction market earnings denominated in digital currency
- Netherlands: Applies a wealth-based tax on total holdings (Box 3) instead of taxing realised profits
Australia
Australia's tax office (ATO) categorises prediction market earnings as taxable income. For those who trade regularly, such earnings fall under standard income classification. Those who participate infrequently might attempt to claim hobbyist status, though the ATO has grown more rigorous in scrutinising blockchain-related ventures.
Record-keeping best practices
Irrespective of where you reside, you should preserve documentation covering:
- Each transaction: timestamp, contract name, position type (YES/NO), entry price, position size
- Account funding and withdrawals including dates and amounts
- Exchange rates for stablecoin-to-fiat conversions at the moment of each transaction
- Documentation of platform charges
- Settlement details and final payout figures for resolved contracts
PolyGram's tax export feature automatically creates IRS 8949-ready documentation and EU MiCA-compliant exports straight from your transaction data. Start trading on PolyGram →