How Are Prediction Market Winnings Taxed? (2026 IRS Guide)
Net Kalshi profits are federally taxed as ordinary income — not gambling income. Here's how to report, what to track, and the state-tax angle.
- Kalshi issues a 1099-MISC or 1099-K if you cross the IRS threshold (currently $5,000 in aggregate annual proceeds; the threshold has been changing — check the current year's IRS guidance).
- Kalshi does not auto-issue 1099s. You are responsible for tracking and reporting your own P&L.
- Either way, all net winnings are taxable whether or not you receive a 1099.
Affiliate disclosure: We may earn a commission if you sign up through links on this page, at no extra cost to you. This doesn't influence our editorial content.
How the IRS classifies prediction-market winnings
Because Kalshi are CFTC-registered derivatives exchanges, the IRS treats event-contract profits as ordinary income — not as gambling income. This affects how you report (Form 1040, not Schedule 1 line 8b), what you can deduct, and how losses carry.
Federal reporting thresholds
- •Kalshi issues a 1099-MISC or 1099-K if you cross the IRS threshold (currently $5,000 in aggregate annual proceeds; the threshold has been changing — check the current year's IRS guidance).
- •Kalshi does not auto-issue 1099s. You are responsible for tracking and reporting your own P&L.
- •Either way, all net winnings are taxable whether or not you receive a 1099.
State tax
Eight states have no state income tax (Texas, Washington, Nevada, Tennessee, South Dakota, Alaska, Wyoming, California) plus New Hampshire (no tax on earned income). California is not one of them — Californians owe state tax on prediction-market profits at 1% to 13.3% on top of federal tax.
Higher-tax states layer their normal income-tax bracket on top of federal: California up to 13.3%, New York up to 10.9% plus NYC city tax, Hawaii up to 11%, Oregon up to 9.9%.
Deductions and losses
- •Trading losses can offset trading gains within the same tax year.
- •Net losses cannot offset W-2 wages or other ordinary income (unlike a true business — you'd need trader-tax-status election for that).
- •Bonuses (e.g. the $25 VENICE credit) are not taxable when received — only the net winnings you ultimately withdraw are taxable.
What records to keep
- •Year-end account statement from Kalshi (downloadable from Settings → Statements).
- •For Kalshi: export your trade history from the iOS app and keep copies of bank deposits/withdrawals.
- •Bank statements showing deposits to and withdrawals from the platforms.
This guide is general information, not tax advice. For complex situations (large positions, multi-state residency, trader-tax-status election), work with a CPA familiar with derivatives tax.
Last reviewed by Catie Di Stefano on August 7, 2026. We re-verify market prices, polling, and citations on every update.
Frequently Asked Questions
Related guides
Pillar pages
Sources & references
- 1.IRS — Topic No. 419, Gambling Income and Losses — IRS.gov
- 2.IRS — About Form 1099-MISC — IRS.gov
External links open in a new tab. We cite primary regulatory and major news sources where possible. Citations to trusted regulators (CFTC, SEC, IRS, NOAA, .gov, .edu) are dofollow; commercial outbound links are not endorsements.
Catie Di Stefano has spent 15 years working with online gambling across some of the most regulated and competitive gambling markets in the world.
Starting at Betsson Group in Malta in 2011, she has in recent years worked her way through VIP management, CRM, gamification and marketing leadership across European and North American operations. Catie was a licensed consultancy for Hard Rock Casino in New Jersey, where she held a DGE vendor license and owned the execution of the online CRM program from launch day in 2018.