Tax experts in the United States are at an impasse over how users of prediction platforms like Polymarket and Kalshi should pay taxes on their winnings, according to Wired.
“We have a guidance vacuum. This puts taxpayers at a disadvantage,” noted Patrick Camuso, an accountant specializing in digital assets.
The IRS has not issued official guidelines on the taxation of prediction markets. However, there are several ways to report gains or losses.
Multiple Approaches, No Clear Answer
Some apply rules governing financial derivatives. The platforms themselves claim to offer financial contracts regulated by the CFTC.
Others equate profits from prediction markets to gambling winnings or simply declare them as regular income and hope for the best, Camuso stated.
The expert describes these platforms as “a mix of bets, derivatives, and investment contracts.” He assesses clients’ tax obligations on a case-by-case basis:
“Our firm usually takes a more conservative stance for most clients due to the ambiguity of many tax rules.”
However, declaring income from prediction markets as gambling winnings is the most burdensome method. Instead of reporting the net amount, one must account for each bet, tracking wins “per session.”
Trader Nate Meininger joked that the lack of guidance allows one to avoid reporting to the tax authorities. In reality, he is actively studying Kalshi’s tax documents and consulting with an accountant.
If you’re wondering how to file your taxes for your prediction market income, you don’t. You don’t file it. The IRS isn’t telling us how to file it because they don’t want us to. Thank me later and follow me for more good tax advice
— Nate Meininger (@NathanMeininger) March 13, 2026
“I don’t do it myself. It’s too much hassle,” he admitted.
Earlier, CNBC sources also noted another option — treating prediction market contracts as instruments under Section 1256 of the U.S. Tax Code.
In this case, gains or losses are taxed using a 60/40 formula regardless of the contract’s holding period: 60% is considered long-term capital gain (or loss), 40% short-term.
The Offshore Platform Dilemma
The situation is particularly challenging for Americans using VPNs to access Polymarket and other crypto platforms. These platforms do not issue tax documentation.
Legally, U.S. users are generally prohibited from engaging with unlicensed services. Nevertheless, all citizens are required to declare income, regardless of its source. Thus, traders purchasing contracts on Polymarket must report independently.
According to journalists, the situation could be exacerbated by the IRS’s reorganization. The tax agency is undergoing a major overhaul, with parts of the modernization process led by operatives from Elon Musk’s DOGE.
In April, CFTC Chairman Michael Selig urged officials to establish clear rules for prediction markets. He warned that without such regulations, many companies might relocate offshore, and investors could face an “illusion” similar to the FTX scenario.