MW Yes, your Super Bowl winnings on Kalshi are taxable - just like your win on Trump's election victory
Andrew Keshner
Prediction-market winnings are taxable income, even if platforms don't send a notice reporting the money to the recipient and the IRS
The scores of Americans who bet on the results of last year's presidential race now face a certainty: The Internal Revenue Service will want its cut of the winnings.
Prediction markets gained wide visibility last fall as people turned to sites like Polymarket, PredictIt, Kalshi, Interactive Brokers and Robinhood to bet on whether Kamala Harris or Donald Trump would take the White House.
The rise of prediction markets is a relatively new trend, especially when it comes to political events. A court decision last fall cleared the way for traders to bet money on the election's outcome on a massive scale.
Now, tax-filing season is underway for the money made in 2024. The IRS has long said any gambling winnings are completely taxable - and those established rules apply just as much to prediction markets, experts say.
They're especially relevant with Super Bowl Sunday, the most bet-on single event of the year, set for this weekend.
"It's taxable income," said Matthew Foreman, a tax attorney and partner at law firm Falcon Rappaport & Berkman. The winnings are income even if the prediction platforms don't send a notice formally reporting the money to the recipient and the IRS, he added.
"Whether or not they get paperwork, it's income - period," said Russ Fox, principal at Clayton Financial and Tax in Las Vegas. His clients include professional gamblers who have previously made money from prediction markets, and it's his job to make sure they don't run afoul of IRS rules.
In the meantime, PredictIt, Kalshi, Interactive Brokers $(IBKR)$ and Robinhood (HOOD) all said that they are indeed sending out tax forms.
Polymarket did not respond to requests for comment. Its fine print says that users have the "sole responsibility" to make sure they are following the tax laws that might apply.
Do prediction markets count as gambling?
In a sense, investors who buy a stock are betting that the company's share price will increase. When they sell the stock, profits from the sale are subject to capital-gains taxes.
If the sale happens more than a year after the purchase, it's known as a long-term gain, which can be taxed at 0%, 15% or 20%. The rate depends on taxable income thresholds; individuals making $200,000 and married couples filing jointly who make $250,000 pay an extra 3.8% net investment income tax.
If the sale happens less than a year after purchase, it's considered a short-term capital gain, which counts as ordinary income. That means it's lumped in with other money like wages, and exposed to the ordinary income-tax rates of 10% to 37%.
But prediction markets aren't stock markets, and the distinction may have tax implications.
On a technical level, prediction markets typically involve the purchase and trade of "event contracts." These are financial instruments allowing someone to put money on a "yes" or "no" outcome.
On a broader level, experts said, buying and selling contracts on prediction markets amounts to speculation on an outcome that's unknown at the time - like the winning Super Bowl team or the results of a roulette-wheel spin. As the tax code's referee, the IRS could view prediction-market winnings as gambling winnings even if they seem like an investment, experts noted.
"I just fundamentally don't see how it could be different from putting money on a sporting event," said Foreman, the tax attorney. "If you were to get audited by the IRS on this, I think they'd take a hard-and-fast position that this is just like sports gambling."
What's happening is the creation of "an investment vehicle that is like a gambling bet," said Mark Luscombe, principal federal-tax analyst at Wolters Kluwer Tax & Accounting.
However, there's still an open question as to whether prediction-market winnings are gambling income. "These brokers probably do not consider themselves to be gambling establishments. I am not sure how the IRS will view the issue," Luscombe said.
"The brokerages seem to seek to contend that it is not gambling - rather, it is a method that can be used to hedge risks, while acknowledging that some may use the contract who are not hedging risks," he added.
Fox took a more cut-and-dry approach - recalling the old saying about what to make of something if it looks like a duck, walks like a duck and sounds like a duck. "The duck test says this is gambling," he said.
The IRS and the Treasury Department did not respond to requests for comment.
What are the tax rules for gambling?
The IRS has specific rules concerning gambling winnings and losses. Most importantly, the winnings count as ordinary income and not as a capital gain, for which long-term gains would typically be taxed at a lower rate.
The IRS does allow a tax break for gambling losses, but there's a catch: Anyone who wants to use it needs to itemize their deductions. Relatively few people do that, and instead take the standard deduction. Furthermore, the size of the gambling-loss deduction cannot exceed the amount that's won. In other words, someone who won $100 and lost $200 could only claim a $100 gambling-loss deduction.
When a casino or a sports-betting site pays out, the lucky winner can expect a tax document called a Form W-2 G. It's generally sent once winnings total at least $600 and at least 300 times the wager amount, according to the IRS.
Once winnings are above $5,000 and at least 300 times the amount of the wager, the gambling establishment may hold back 24% of the haul, Luscombe added. The 24% isn't a tax rate; rather, it's a withholding amount in the same vein as wages held back on a paycheck, he noted. The amount in taxes still owed or due back is ultimately determined at tax time with the rest of a person's income picture.
There's another catch: The prediction sites and exchanges say they are sending out 1099 forms, which are a different document that's used to report investment income, not gambling income. PredictIt, for example, said through a spokesperson last month that it's "required to issue Form 1099 to any trader, resident in the U.S., who has a net profit of $600 or more in any calendar year."
Net profit is what's left after losses, trading fees and withdrawal fees are subtracted from the gross profit, the spokesperson said - adding that PredictIt's accounting team "is working on [the tax forms] now."
Robinhood's website notes that the money from event contracts will be entered as "miscellaneous income" on a 1099. If the actual payment is received this year, that money would be reported for 2025 returns filed next year. However, if someone bought and sold an event-contract position last year, the money would be reported on the 2024 tax return filed this year.
A Kalshi spokesperson said the company "provides a statement for users with their history similar to a 1099-B they would receive from their stock broker."
Interactive Brokers told MarketWatch: "We will be reporting on a 1099, but provide no guidance as to how the client should report this on their tax return as the client should consult a tax professional." The brokerage offers event contracts through its subsidiary, ForecastEx.
Brokerages have until Feb. 18 to supply these 1099 forms to recipients documenting their 2024 profits.
The fact that prediction-market winnings are being shown on a 1099, instead of on the W-2 G issued by casino and sports-betting sites, may not matter to the IRS, according to Foreman and Luscombe. By getting the third-party reporting from prediction-market sites, the IRS is learning that someone has taxable income to report, they said.
The prediction-market money is taxed as ordinary income, whether it's gambling winnings or a short-term capital gain, Luscombe said.
Still, it would be important to know if the IRS would certainly treat the income as gambling winnings rather than as investment income, Fox noted. His professional-gambler clients have reported their prediction-market winnings on their Schedule C form, which documents business profits and losses, rather than on a 1099.
Many prediction-market winnings might stay under $600 and not trigger the issuing of a tax form, Fox said. But there's "absolutely, positively no rule that says if you don't get a tax form, you don't have to report [the income]," he added.
There is an attachment to the main tax-return form, a Schedule 1 document, where amateurs with prediction-market winnings could consider reporting the money, according to Fox. There's a line for gambling and a line for other income where people could conceivably record their winnings, even those under $600, he said.
What happens if you don't report prediction-market income to the IRS?
What if someone wants to roll the dice and skip reporting their prediction-market income - even when they haven't received tax forms and their win is sizable?
Such unreported winnings "may escape detection given the low audit rates [of taxpayers] by the IRS," Luscombe said. However, "audits of gambling institutions may be more likely and produce information about those who received gambling winnings," he added.
Prediction markets are just another space at the intersection of life and taxes that could use some extra clarity from the IRS, Foreman said. There's still a basic rule of thumb for those winnings, he noted: "The most important thing is to put it on your return."
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-Andrew Keshner
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February 08, 2025 09:00 ET (14:00 GMT)
MW Yes, your Super Bowl winnings on Kalshi are -2-
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