Key takeaway: Most jurisdictions impose tax obligations on prediction market earnings. How these gains are categorised—whether as capital gains, gambling proceeds, or standard income—depends on your location and trading frequency. Maintaining comprehensive documentation of all transactions is essential.
The uncomfortable reality many traders face: are prediction market returns subject to taxation? The answer is straightforward: in virtually all cases, yes. What follows is a detailed country-by-country analysis of how tax authorities across the globe handle prediction market earnings.
United States
The IRS has not released targeted rules addressing prediction markets directly, yet established tax principles still apply:
- Capital gains treatment: Should prediction market shares qualify as property assets (similar to cryptocurrency holdings), gains face short-term capital gains taxation (taxed at standard income rates, reaching 37%) when held for less than twelve months
- Gambling income: When classified as wagering activity, all proceeds must be reported as ordinary income via Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A), though losses cannot reduce other taxable income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket lacks this reporting mechanism — yet you remain obligated to disclose earnings voluntarily
United Kingdom
The Revenue treats prediction market earnings predominantly as betting returns, which remain untaxed for non-professional participants. Nevertheless, certain conditions apply:
- Should trading constitute your primary livelihood, the Revenue may reclassify activity as commercial trading income (subject to standard income tax)
- Stablecoin conversions (such as USDC transactions) may constitute separate taxable events under capital gains rules
- Those engaged professionally should obtain formal clearance from the Revenue
European Union
Member states within the EU apply divergent tax frameworks:
- Germany: Earnings taxed either as private asset disposals or speculative trading gains (consult our German tax guide)
- France: Stablecoin-denominated gains face a uniform 30% levy (PFU) covering prediction market settlements in digital currencies
- Netherlands: Applies portfolio wealth taxation (Box 3) based on holdings rather than realised profits
Australia
The Australian Tax Office deems prediction market returns as taxable revenue. Frequent traders face ordinary income classification on their earnings. Those trading infrequently might attempt to claim hobbyist status, though the ATO has adopted stricter enforcement regarding blockchain-related ventures in recent years.
Record-keeping best practices
Irrespective of location, preserve documentation covering:
- Individual transaction details: timestamp, venue, position (YES/NO), entry price, volume
- Account funding and withdrawals including dates and corresponding amounts
- Stablecoin and fiat exchange rates applicable at each transaction moment
- Platform commission invoices
- Settlement information and corresponding payout figures
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-formatted data exports derived directly from your transaction ledger. Start trading on PolyGram →