Prediction Market Tax Guide 2026: 1099, Section 1256, and Self-Reporting

What you will actually receive

The Tax Landscape in 2026: Platform-by-Platform

Prediction market tax treatment in 2026 depends significantly on which platform you use. Platforms differ on two dimensions: (1) whether they provide automated IRS Form 1099, and (2) whether their contracts may qualify for favorable Section 1256 treatment. Here is where each major platform stands:

Do not pick a platform expecting it to do your tax reporting for you. Kalshi does not issue a 1099 for event-contract profits. It provides a monthly profit-and-loss statement (Account → Tax Info) and issues Form 1099-INT for interest and Form 1099-MISC for credits and rewards above IRS thresholds. Robinhood does not issue a 1099 for event-contract trades and does not report them to the IRS; it provides an annual event-contract statement, which it says is not a substitute tax form. PredictIt issues Form 1099 to US traders with $600 or more of net profit in a calendar year. Everywhere else in this table, you construct your own gain/loss records for every trade.

Section 1256: The Potentially Favorable Treatment

Section 1256 of the US Tax Code (26 U.S.C. §1256) covers a defined set of contracts: under §1256(b)(1), Section 1256 contracts include any regulated futures contract, any foreign currency contract and any nonequity option. Gain or loss on a Section 1256 contract is treated as 40% short-term and 60% long-term capital gain or loss (§1256(a)(3)), regardless of how long you held the contract. At the top capital gains rates, this is meaningfully more favorable than treating all prediction market gains as short-term (ordinary income rate).

If a tax professional concludes that Section 1256 applies to your contracts, the gains and losses are reported on Form 6781, which the IRS says is used to report gain or loss on section 1256 contracts under the mark-to-market rules.

The 60/40 Rule in Practice

Example: You realize $10,000 in prediction market gains for the year, all from contracts held fewer than 30 days.

• Without Section 1256: $10,000 taxed as short-term capital gains = ordinary income rate (up to 37% for top earners)
• With Section 1256: $6,000 taxed as long-term (0%, 15%, or 20%) + $4,000 as short-term. For a top-bracket earner: $6,000 × 20% + $4,000 × 37% = $1,200 + $1,480 = $2,680 total tax vs $3,700 without Section 1256. A 27% reduction.

Which Prediction Market Contracts May Qualify?

A CFTC designated contract market (DCM) is a qualified board or exchange: §1256(g)(7)(B) includes "a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission". On such a board, two kinds of Section 1256 contract are relevant to event contracts. A regulated futures contract is one that is marked to market for deposits and withdrawals and traded on or subject to the rules of a qualified board or exchange (§1256(g)(1)). A nonequity option is any listed option that is not an equity option (§1256(g)(3)).

Against that, §1256(b)(2)(B) excludes "any interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement." The open question has two parts: whether an event contract on a DCM meets either definition at all (it can fail them without being a swap), and, if it does, whether the swap exclusion takes it back out as a "similar agreement". The IRS has issued no specific guidance on event contracts, and practitioners disagree. This guide does not say which treatment is right.

No platform — Kalshi included — has been verified as treating or reporting its event contracts as Section 1256 contracts. Do not assume your Kalshi contracts qualify for Section 1256 treatment without consulting a tax professional who has reviewed the relevant IRS guidance and Kalshi's contract terms.

Mark-to-Market Requirement

Under §1256(a)(1), each Section 1256 contract held at the end of the tax year is treated as sold at its fair market value on the last business day of the year, and any resulting gain or loss must be recognized. This creates tax liability on unrealized positions.

For prediction market traders with many open contracts at year-end, this could create a significant tax event before you have received cash. If a tax professional concludes Section 1256 applies to your contracts, keep cash aside for that tax and keep each open position’s year-end value in your records.

Records to keep, platform by platform

Whichever tax treatment applies, you need records. Here is what each platform provides and where to find it.

Kalshi

Kalshi provides a monthly profit-and-loss statement under Account → Tax Info. It is calculated first-in, first-out (FIFO) and includes fees. Kalshi issues Form 1099-INT for interest and Form 1099-MISC for credits and rewards above IRS thresholds, but no 1099 for event-contract profits, so keep the monthly statements for every year you trade.

Robinhood

• Profit and loss: Investing → Realized profit & loss → select “Prediction markets”. This view does not include fees.
• Every trade, payout and fee: Account → History, filtered by Event contracts.
• Annual statement: Account → Reports and statements → Annual reports. It arrives after year-end, typically in late January or early February, and lists transactions, closing dates, costs, proceeds, fees and commissions, and net P&L. Robinhood calls it the authoritative record of the year’s costs, proceeds and net P&L, but says it is not a substitute tax reporting form.

Polymarket US

Polymarket US is a custodial account held in US dollars, and whether it issues a 1099 is not confirmed. Its documentation describes API endpoints that export your trades, positions, fees and cash ledger as CSV (ledger history starts May 1, 2026). No in-app export menu is documented.

PredictIt

PredictIt is required to issue Form 1099 to any US-resident trader with net profit of $600 or more in a calendar year. It defines net profit as gross profits minus losses minus trading fees; deposit and withdrawal fees are not included. Withdrawal fees were included through tax year 2025 and are excluded beginning in 2026. PredictIt’s own example: a $1,000 gain, a $200 loss and $100 in fees give $700 of net profit.

Self-Reporting for Polymarket and PredictIt

If you trade on platforms that do not issue 1099s for your trades — which includes Kalshi and Robinhood — you are responsible for reporting gains and losses yourself. Here is how to approach Polymarket and PredictIt:

Polymarket

Polymarket US accounts are held in US dollars, funded by debit card, bank transfer (ACH) or wire, so there is no on-chain history to reconstruct; whether Polymarket US issues a 1099 for event-contract profits is not confirmed.

On Polymarket’s international app, every transaction is on the Polygon blockchain (US residents can only close existing positions there, not open new ones). Every position entry, settlement, and fund movement has an on-chain record associated with your wallet address. This creates a complete, auditable transaction history — but it requires work to convert into a tax-ready format.

Step-by-step for the international app:

1. Export wallet history. Use your Polygon wallet address to pull all transactions from Polygonscan or a data export tool. Most crypto tax software can do this automatically via wallet import.
2. Convert USDC values to USD. Each transaction must be valued in USD using the exchange rate at the time of the transaction. USDC is pegged to USD, so this is typically 1:1 — but technically you should use the actual exchange rate on each date.
3. Calculate gain/loss per contract. Cost basis = USDC paid for each contract at entry. Proceeds = USDC received at settlement. Gain/loss = Proceeds minus cost basis minus any fees.
4. Report on Form 8949 and Schedule D. Each contract position is a separate line on Form 8949 with cost basis, proceeds, and gain/loss. Schedule D aggregates these.

Recommended tools: crypto tax software such as Koinly and CoinTracker, both of which state that they sync Polygon wallets, can automate steps 1–3 and generate Form 8949-ready reports.

PredictIt

PredictIt issues Form 1099 to US traders with $600 or more of net profit in a calendar year. Below that threshold, or to check the form, you need your own records. PredictIt transactions are off-chain — you cannot use a blockchain explorer. Use your PredictIt account history.

Step-by-step for PredictIt self-reporting:

1. Pull your account history. Use your PredictIt account history to list every contract you closed or that resolved during the year.
2. Identify realized gains. For each winning contract, record the gross gain.
3. Identify realized losses. Losing positions are straightforward — cost minus proceeds equals loss.
4. Subtract trading fees. PredictIt defines net profit as gross profits minus losses minus trading fees (deposit and withdrawal fees are not included), for example $1,000 − $200 − $100 = $700.
5. Tally net gain/loss. Aggregate across all contracts. Report on Schedule D (net capital gains/losses) rather than Form 8949 position-by-position if your accountant recommends the simplified approach for a limited number of trades.

Tax professional note: PredictIt’s own net-profit figure subtracts trading fees. How the IRS ultimately characterizes PredictIt's fee, and so whether you report gains before or after it, is a judgment call. Get specific guidance.

Opinion Trade

Opinion Trade is on-chain, similar to Polymarket’s international app — use crypto tax software with wallet import. Additional complexity: the OPN token creates separate taxable events (token receipt, staking rewards if applicable, token sales) that must be tracked independently of prediction market gains and losses. Token transactions are generally taxable events in the US.

How to Minimize Your Tax Compliance Burden

1. Know what your platform actually gives you

No platform removes the self-reporting requirement for event contracts. Kalshi does not issue a 1099 for event-contract profits, but its monthly profit-and-loss statement (Account → Tax Info) is a useful starting record. Robinhood does not issue a 1099 for event-contract trades and does not report them to the IRS; its annual event-contract statement, it says, is not a substitute tax form. PredictIt issues Form 1099 to US traders with $600 or more of net profit in a calendar year.

2. Use crypto tax software for on-chain platforms

If you trade on Polymarket’s international app or Opinion Trade, use crypto tax software (such as Koinly or CoinTracker). It turns the compliance burden for on-chain platforms from a multi-hour manual exercise into an automated import, which is worth considering for anyone with more than a handful of positions per year on those apps.

3. Track positions in real time

Do not wait until April to reconstruct your prediction market activity. Maintain a running spreadsheet or use software that tracks each position as you open and close it, including the USD value at each date. Year-end reconstruction is significantly more painful than real-time tracking.

4. Consult a tax professional who understands derivatives

Prediction market contracts are a novel asset class. Many tax professionals have not encountered them. Seek a CPA or tax attorney who has experience with CFTC-regulated derivatives, cryptocurrency taxation, or financial products — not just W-2 income and standard investments. The Section 1256 question in particular requires someone who has reviewed the specific contract terms against IRS guidance.

5. Understand year-end planning if Section 1256 applies

If Section 1256 applies, closing a position before year-end or holding it does not change whether its gain or loss is recognized that year: open Section 1256 contracts are treated as sold at fair market value on the last business day of the year (§1256(a)(1)). A gain on an open position can therefore be taxed before you receive any cash from it, so keep cash for that tax. Keep each open position’s year-end value as part of your records.

The Tax Case for Kalshi

From a record-keeping standpoint, Kalshi has some practical advantages in 2026 — but an automated 1099 is not one of them:

• Monthly profit-and-loss statement, not a 1099. Kalshi does not issue a 1099 for event-contract profits. It provides a monthly profit-and-loss statement (Account → Tax Info) and issues Form 1099-INT for interest and Form 1099-MISC for credits and rewards above IRS thresholds. You still report event-contract gains and losses yourself.
• Section 1256: unsettled. Kalshi has been a CFTC DCM since 2020, but its 5-year regulatory track record does not settle the question: Kalshi has not been verified as treating or reporting its event contracts as Section 1256 contracts. Do not plan around 60/40 treatment without professional advice.
• USD records. Deposits and withdrawals are in US dollars (as they are on Polymarket US), so there is none of the per-transaction USDC-to-USD conversion that Polymarket’s international app requires.
• Robinhood access option. Kalshi contracts are also available through Robinhood, but Robinhood does not issue a 1099 for event-contract trades and does not report them to the IRS; it provides an annual event-contract statement, which it says is not a substitute tax form.