Kalshi Taxes 2026: 1099 Forms, Ordinary Income & Tax-Loss Harvesting Rules

I’ve been tracking prediction market gains since late 2025, and the single biggest headache isn’t the math—it’s the paperwork. Kalshi doesn’t issue 1099s the way brokers do. Polymarket pays in USDC, which complicates cost basis. And the IRS doesn’t have a dedicated prediction-market tax form yet. Here’s what actually happens when April 15 arrives. Compare fees across prediction market platforms.

What Tax Forms Do Kalshi & Polymarket Actually Issue?

Kalshi generally sends a Form 1099-MISC for net profits exceeding $600 reported to the IRS, though this is evolving and platform guidance should be your first source. Polymarket, which operates on the Polygon network and pays winners in USDC, faces a different reporting structure: you may receive no formal 1099 at all, or Polymarket may issue a custom report. The IRS has not yet finalized a dedicated Form 1099-DA for crypto transaction reporting—that’s still in proposed-rule status as of April 2026.

The critical detail: the absence of a 1099 does not mean you have no tax liability. The IRS expects you to self-report all income, whether or not the platform issues a form. This is where most prediction market traders make their first mistake.

1099-B vs 1099-DA vs 1099-MISC: Which One(s) You’ll Get

The form landscape is fragmented. Form 1099-B is the standard for securities and options brokers—it reports transactions, not winnings. Kalshi and Polymarket don’t typically use this for prediction markets because prediction markets aren’t securities under current CFTC guidance (Kalshi) or operate outside traditional US tax reporting (Polymarket).

Form 1099-MISC is what Kalshi may use. It’s designed for miscellaneous income and has historically been used for prizes, gambling winnings, and other non-salary income. However, the threshold for issuance ($600+ net profits) and the specific mechanics vary.

Form 1099-DA (digital asset transactions) is still in proposed-rulemaking phase. It may eventually require crypto exchanges to report all transactions, but no federal standard exists yet for April 2026. Polymarket may issue custom 1099-equivalent documentation, but it may not match IRS-standard forms.

The lesson: never assume a missing form means you don’t owe taxes. File Form 8949 and Schedule D yourself to self-report your trades.

USDC Cost Basis: How Winnings Trigger Tax Liability

This is where Polymarket gets thorny. USDC is a stablecoin—it’s not Bitcoin or Ethereum, which simplifies some mechanics but creates a unique cost-basis problem.

When you buy $5,000 of USDC at $1.00 per token, your cost basis is $5,000. If you then win $500 of USDC on a prediction market, that $500 is a separate taxable event—it’s ordinary income to you, not a capital gain. You now have $5,500 in USDC, and your total cost basis is still $5,000, but the $500 in new USDC came from winnings, not an exchange purchase.

You owe ordinary income tax on the $500 in winnings immediately, even though the USDC sits in your wallet at $1.00 per token. This is the critical USDC mistake—traders assume stablecoin = no tax liability because the price is stable. The purchase of USDC itself is not a taxable event. The winning of USDC in a prediction market is a taxable event (ordinary income).

Ordinary Income vs Capital Gains: Why Prediction Markets Are Different

Prediction market winnings are not capital gains. They’re ordinary income. This distinction costs you money.

If you earn $50,000 in salary and win $10,000 on Kalshi, your taxable income is $60,000. You pay your regular income-tax rate (22%, 24%, 32%—whatever your bracket) on the full $60,000. You do not get the preferential 15% or 20% long-term capital gains rate.

This is fundamentally different from Bitcoin or Ethereum holdings. If you bought 1 BTC for $45,000 in 2023 and sold it for $65,000 in 2026, that $20,000 gain qualifies for long-term capital gains (15-20%). Your tax bill is lower.

But Kalshi and Polymarket don’t issue capital gains—they issue ordinary income. The IRS treats prediction market outcomes as winnings, not investment returns. Think of it like professional sports betting: your winnings are ordinary income to the IRS, not a capital gain.

Exception: If Kalshi eventually reclassifies prediction-market trading as investment activity (unlikely, but not impossible), some traders might argue a capital-gains treatment. This is an open question in tax law.

Loss Deductibility: Section 165(d), Gambling Rules & Court Precedent

This is where things get legally murky. Can you deduct prediction market losses?

The IRS has a rule: Section 165(d) allows deductions for gambling losses, but only up to the amount of gambling winnings in the same tax year. If you won $5,000 and lost $8,000, you can deduct $5,000 against the $5,000 in winnings, leaving you with zero taxable income from prediction markets. You cannot carry forward the $3,000 loss to reduce taxes on other income.

The catch: the IRS does not always classify prediction-market trading as gambling. Some traders argue it’s investment activity. Court cases have gone both ways. In United States v. Colclough and other precedent, judges have struggled with whether online trading is “gambling” or “investment.” Prediction markets are a newer frontier, and case law is scarce.

Bottom line: Do not assume you can deduct prediction-market losses. The IRS may challenge you, and the outcome depends on your specific fact pattern and the jurisdiction.

What to Do If Your Platform Doesn’t Issue a 1099

This is the most common scenario for Polymarket traders. You won $8,000 on prediction markets. Polymarket sends you nothing. No 1099. No email from their compliance team. Just silence.

You still owe taxes. Here’s the filing process:

1. Create a detailed trade log: Export all trades from Polymarket (or Kalshi). For each winning trade, record: entry date, entry price, exit date, exit price, profit or loss in USD or USDC.

2. Aggregate by tax year: Total all 2025 winnings and losses.

3. File Form 8949 (Sales of Capital Assets): This is not quite right for prediction markets (since they’re not capital assets), but it’s the form the IRS expects you to use for securities and asset transactions. List each trade (or aggregate if >500 trades) and your net profit/loss.

4. File Schedule D: This summarizes Form 8949 and reports your total capital gains or losses. (Again, prediction markets aren’t technically capital assets, but this is the form the IRS has designed for exactly this scenario—unreported transactions that don’t have a 1099.)

5. Report the income on your tax return: Your total prediction-market profit flows into your taxable income on Form 1040.

Why this works: Even without a 1099 from Polymarket, you’re self-reporting the income. If the IRS ever audits you, you have a detailed trade log, and you’ve already reported the income. You’re not hiding anything. The IRS is more likely to challenge traders who take zero deduction and claim zero Polymarket income but clearly had trading activity.

Form 8949 & Schedule D: Filing Your Prediction Market Trades

Here’s how the actual IRS filing process works if you don’t receive a 1099 or if you want to report more detail than a 1099 provides.

Form 8949 (Sales of Capital Assets): This form is the gateway. You list each transaction (or a summary row for thousands of transactions). The format is: acquisition date, acquisition price, sale date, sale price, gain or loss. At the bottom of Form 8949, you total all gains and losses.

For prediction markets: You’ll treat each winning trade as a “sale.” The entry price is your position stake (or cost of the contract). The exit price is your payout. The gain is the difference.

Example: You buy a “BTC closes above $100K by Dec 31” prediction contract for $60. It resolves YES, and you receive $100. Your gain is $40. On Form 8949, you record: – Acquisition date: when you purchased the contract – Acquisition price: $60 – Sale/exit date: resolution date – Sale/exit price: $100 – Gain: $40

If you have 200 trades, you list them all (or use a summary line if the IRS allows). This gets tedious fast, which is why CoinTracker exists.

Schedule D (Capital Gains and Losses): This form summarizes Form 8949. You take your totals from Form 8949 and plug them into Schedule D, which then feeds into your main tax return (Form 1040).

Critical: If you don’t receive a 1099-B for these trades, you’ll check the “Box D” on Form 8949 indicating your trades are NOT reported on a 1099. This flags to the IRS that you’re self-reporting.

State Tax Variation: CA, NY, TX & Others

Federal tax is one layer. Your state may add another.

California: Income from prediction markets is taxable as ordinary income at California’s marginal rates (1-13.3% depending on income). California does not allow gambling-loss deductions to the same extent as federal law. If you’re a California resident and prediction market trader, you owe both federal and state tax on your winnings.

New York: New York taxes prediction-market winnings as ordinary income. New York does not have a specific exemption for prediction markets. If you’re a New York resident, file both federal and New York returns (Form IT-201).

Texas: Texas has no state income tax. If you’re a Texas resident, you owe federal tax only (no state layer). This is one tax advantage to living in a no-income-tax state.

Other states: Most states tax prediction-market income similarly to the federal approach—ordinary income rates. A few states have proposed betting taxes or gaming taxes, but prediction markets are not yet clearly covered. Check your state’s Department of Revenue guidance.

Multi-state consideration: If you’re a full-time trader with significant winnings, you may owe taxes in multiple states if you’ve moved during the year or have income-earning activity in multiple states.

CPA Checklist: Questions to Ask Your Tax Professional

Don’t DIY this entirely. Even with detailed trade logs, the interpretation of prediction-market tax law can vary by jurisdiction and precedent. Here are the exact questions to ask your CPA:

1. How should I report Kalshi/Polymarket trades? (Form 8949 + Schedule D, or custom Schedule C?)
2. Are prediction-market winnings ordinary income or capital gains in my state?
3. Can I deduct my losses, and if so, do they offset only prediction-market winnings or other income too?
4. Should I track USDC separately for cost basis, or does the IRS treat USDC winnings differently than USD winnings?
5. If I received no 1099 from Polymarket, what form do I file to self-report?
6. Is there any state-specific treatment I should know about?
7. If I’m audited, what documentation would the IRS want from me? (This tells you what to keep now.)

Write down the answers and file them with your tax documents. This creates a paper trail showing you took reasonable steps to comply.

Tax Loss Harvesting in Prediction Markets (2026 Strategy)

Prediction-market tax loss harvesting is a strategy, but with severe limitations.

How it could work: If you realize $10,000 in prediction-market gains and also have $3,000 in losses, you can offset the gains against the losses, reducing your taxable income to $7,000. At a 32% tax rate, that’s $960 in tax savings.

The catch: Under Section 165(d) (gambling loss rules), losses can only be used to offset gambling winnings in the same tax year. You cannot carry forward a loss. You cannot use a $3,000 loss to offset $3,000 of your salary income. The loss expires at year-end.

The real-world application: If you’re close to year-end and you’ve realized $10,000 in gains, deliberately closing out a $3,000 losing position captures that loss in the same tax year and reduces your gain to $7,000. This is legal and smart. But if you’re not a high-volume trader with multiple positions, tax loss harvesting on prediction markets is often not worth the effort.

Frequently Asked Questions

Is Kalshi income taxed as ordinary income?

Yes, in almost all cases. The IRS classifies Kalshi winnings as ordinary income, not capital gains. This means you pay your regular income-tax rate (not the preferential 15-20% capital gains rate) on every dollar of net winnings. A $10,000 Kalshi win at a 32% bracket costs you $3,200 in federal tax (plus state taxes).

Does Polymarket send a 1099?

Polymarket does not send a standard 1099-B or 1099-MISC. Polymarket may issue custom tax documentation or a summary report, but many traders receive nothing. If you don’t receive a 1099, you must still self-report on Form 8949 and Schedule D. The IRS expects you to file regardless of whether Polymarket issues a form.

Can I deduct prediction market losses?

Possibly, but only under Section 165(d) conditions: losses offset only prediction-market winnings in the same tax year. You cannot carry forward losses to future years, and you cannot use losses to offset salary or other income. If you have $8,000 in gains and $3,000 in losses, you net to $5,000 taxable income. The $3,000 loss is “used up” in that year.

Comparison: Kalshi, Polymarket, and Robinhood Tax Treatment

Key difference: Robinhood event contracts may eventually be taxed as capital gains (because they’re cleared through a US-regulated broker), while Kalshi and Polymarket winnings are ordinary income. Robinhood is also likely to issue a 1099-B, which means you don’t have to self-report as aggressively.

Your Action Plan: What to Do Right Now

Step 1: Export your trade history. Log into Kalshi and Polymarket and export all trades from the 2025 calendar year. Save as CSV. Include entry date, entry price, exit date, exit price, and outcome (win/loss).

Step 2: Create a consolidated trade log. Use a spreadsheet (or CoinTracker) to merge all trades into one file. Total your net gains and losses by tax year.

Step 3: Prepare Form 8949 (if no 1099 issued). List each trade (or aggregate) with acquisition/sale dates and prices. Calculate your total gain or loss. If trades exceed 500, you may be allowed to summarize, but ask your CPA.

Step 4: File Schedule D. Summarize Form 8949 totals onto Schedule D. Note whether your trades are reported on a 1099 or if you’re self-reporting.

Step 5: Report on Form 1040. Your net capital gain (or loss) from Schedule D flows into your main tax return. If you have a net loss, you can only offset $3,000 against other income (or carry forward under capital-loss rules—prediction markets may not qualify for this).

Step 6: Ask your CPA about state taxes. Confirm your state’s treatment of prediction-market income. Some states have no income tax; others tax at rates up to 13%. File accordingly.

Prediction markets are still young, tax law is still evolving, and the IRS’s focus on crypto and prediction markets is intensifying. Don’t cut corners. Document everything.

The Bottom Line

Prediction market taxes are not optional just because Kalshi or Polymarket doesn’t send a 1099. The IRS expects self-reporting on Form 8949 and Schedule D. Winnings are ordinary income, not capital gains. Losses offset only winnings in the same tax year, not other income. Track USDC cost basis separately from winnings.

One last rule: save everything. Trade logs, emails, 1099s (if issued), platform correspondence. If you’re audited, the IRS will want proof that you reported your income and filed honestly. Documentation is your defense.

Related Reading

• Polymarket vs Kalshi vs Robinhood: 2026 Comparison
• Are Prediction Markets Legal? 2026 Guide
• Crypto Income Investing 2026