Key takeaway: Prediction market earnings face taxation across virtually all jurisdictions. How they are classified—whether as capital gains, gambling proceeds, or standard income—depends on your location and trading frequency. Maintain comprehensive documentation of all transactions without exception.
The uncomfortable reality many traders avoid: are prediction market returns subject to tax? The straightforward answer: in nearly all cases, yes. Below is a detailed country-by-country examination of how tax authorities around the globe treat prediction market earnings.
United States
The IRS has not released targeted rules for prediction market taxation, though established tax law principles govern treatment:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains face short-term capital gains tax (standard income rates, maximum 37%) when held less than twelve months
- Gambling income: When classified as gambling, all proceeds count as taxable ordinary income reported on Schedule 1, Line 8b. Gambling losses may reduce gambling gains (Schedule A) yet cannot reduce other types of income
- Kalshi (regulated): Sends 1099 forms to American traders. Polymarket does not—yet you remain obligated to report earnings
United Kingdom
HMRC typically categorises prediction market earnings as gambling winnings, which remain untaxed for non-professional participants. Nevertheless:
- Should trading represent your primary occupation, HMRC may reclassify it as trading income (liable to income tax)
- Digital currency transactions (USDC conversions) could generate separate taxable events
- Those engaged professionally should obtain formal HMRC advice
European Union
Member states apply divergent tax rules to prediction market earnings:
- Germany: Earnings taxed under private asset disposal rules or speculative gains provisions (consult our German tax guide)
- France: Digital asset gains taxed uniformly at 30% (PFU) including prediction market proceeds denominated in crypto
- Netherlands: Assessed wealth tax on total portfolio holdings (Box 3) rather than actual profits realised
Australia
The ATO classifies prediction market earnings as assessable income. For frequent traders, earnings constitute standard income. Occasional participants may attempt hobbyist classification, though the ATO has grown stricter regarding crypto-related transactions.
Record-keeping best practices
Across all jurisdictions, document the following:
- All transactions: execution date, venue, position type (YES/NO), entry price, volume
- Deposits and withdrawals including precise timing and monetary amounts
- USDC/fiat exchange rates applicable at each transaction moment
- Receipts for all platform charges
- Final market outcomes and settlement payouts
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-formatted data exports mechanically from your transaction ledger. Start trading on PolyGram →