Prediction Market Taxes in California: What Traders Need to Know
How federal and California state taxes apply to your Kalshi gains — and how to plan around CA's 1%–13.3% income tax brackets.
- California State Tax: What You'll Owe
- Federal Tax Treatment of Prediction Market Winnings
- Do Kalshi Report to the IRS?
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California State Tax: What You'll Owe
California taxes income at 1% to 13.3% depending on bracket — among the highest in the country. That means prediction market winnings are not subject to California state tax — only federal taxation applies. This is a genuine financial advantage compared to California (where state tax tops out at 13.3%) and New York (up to 10.9%).
Federal Tax Treatment of Prediction Market Winnings
Prediction market profits are taxable at the federal level. We are not tax advisors — consult a tax professional for your specific situation.
Short-term vs. long-term
Most prediction market contracts resolve within days or weeks, making them short-term positions. Short-term capital gains are taxed at ordinary income rates (10%–37%). For longer-duration contracts — like a California governor race contract held more than a year — long-term capital gains treatment may apply (0%, 15%, or 20%), but this requires professional guidance.
How gains are calculated
Gain = (Payout received) – (Amount paid for contracts) – (Fees paid)
Example: You buy 100 Lakers contracts at $0.45 = $45 cost. Lakers win, you receive $100. Kalshi fee: $1.50. Taxable gain: $100 – $45 – $1.50 = $53.50.
Losses
Losing trades generate capital losses, which can offset gains. If you have $200 in gains and $80 in losses in a tax year, you're taxed on the net $120.
Do Kalshi Report to the IRS?
Yes. Like other financial platforms, Kalshi issues 1099 forms to US-based traders who meet reporting thresholds. Keep records of all your trades regardless of whether you receive a 1099.
Best practice: Export your full trade history from both platforms at year-end. Both have CSV export functions in account settings. Store these records for at least 3 years.
Crypto Complications (Kalshi)
Kalshi's global platform operates on blockchain rails (Polygon network) using USDC stablecoin. Depositing and withdrawing USDC may trigger crypto tax events; each on-chain trade generates a transaction record. Crypto tax software like Koinly or CoinTracker can import Kalshi history. The Kalshi app (launched late 2025) aligns more closely with Kalshi for tax purposes.
Practical Tax Tips for California Traders
California state tax applies to prediction-market profits at 1% to 13.3% depending on your bracket, on top of federal capital gains or ordinary income tax.
Last reviewed by Catie Di Stefano on August 5, 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.