Understanding the Tax Implications of Prediction Market Winnings
As prediction markets gain popularity, especially during major events like the Super Bowl or presidential elections, it’s crucial to understand the tax responsibilities associated with any winnings. The IRS considers income from platforms like Kalshi, Polymarket, and PredictIt as taxable, meaning any profits from wagering on sports or political outcomes are subject to federal income tax.
The IRS treats these earnings as ordinary income, similar to traditional gambling winnings. Participants may receive a Form 1099 or W-2G that discloses their winnings, but even without forms, they are still required to report this income on their tax returns, and failure to do so could lead to the imposition of interest and penalties.
As FRB Taxation Partner Matthew Foreman noted in a recent MarketWatch article, “It’s taxable income. Whether or not they get paperwork, it’s income—period.” This underscores the importance of properly reporting winnings from prediction markets to remain compliant with tax laws.
Navigating these tax complexities can be challenging, but our firm is well-equipped to assist clients in understanding reporting requirements, identifying potential deductions, and developing strategies for compliance with federal and state tax laws. If you have participated in prediction markets or are considering doing so, reach out to our Taxation Practice Group or call (516) 599-0888 for trusted guidance on managing your tax obligations effectively.
DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.