Do You Have to Pay Taxes on Kalshi Winnings

Yes. That part is not in dispute. What remains genuinely unsettled, even among CPAs who specialize in this exact question, is which category your winnings fall into and how much of a loss you're allowed to deduct against them. The IRS has surely not issued formal guidance on prediction market income as of this writing, and that gap is creating real confusion for traders heading into filing season.

The Short Answer, and Why It's Not the Whole Answer

Every dollar of profit from Kalshi is taxable income under IRC Section 61, which covers income from any source, whether or not a form ever arrives in your inbox. That baseline is not up for debate. What is up for debate: whether that income gets taxed as ordinary income, capital gains, gambling income, or under Section 1256 treatment, the rule normally reserved for regulated futures contracts. Each path produces a meaningfully different tax bill, and tax professionals are currently split on which one applies.

A senior economist at the Tax Foundation who netted roughly $128,000 trading on Kalshi told Business Insider he wasn't sure how to file it. If a professional tax economist is stuck, ordinary traders shouldn't feel behind for asking the same question.

Does Kalshi Send You a Tax Form

This is where the sourcing gets messy, and it's worth being upfront about that instead of pretending there's a clean answer. Some CPA firms report that Kalshi issues a 1099-B covering gross proceeds without calculating cost basis, similar to a brokerage statement. Other recent guides describe Kalshi issuing a 1099-MISC for net profits above $600, calculated automatically and available by January 31 the following year through account settings. Neither can be fully accurate at once, and the likely explanation is that Kalshi's own tax-document practices have shifted over the course of 2026 as the platform scaled.

Either way, the number on any form Kalshi sends is not the final word. If your net profit is $300, below whatever reporting threshold applies, you still owe tax on it. The 1099 threshold is Kalshi's reporting obligation to the IRS, not your reporting obligation to yourself. Keep your own transaction history regardless: contract name, entry date, buy price, exit price, settlement outcome, and profit or loss on each trade. If a filing ever gets questioned, that record is what actually protects you, not the summary number on a form.

The Four Candidate Tax Treatments

Tax professionals are currently weighing four approaches for Kalshi income, and no single one has IRS blessing yet.

Ordinary income is the most conservative position. Profits get reported on Schedule 1 as other income, taxed at your regular bracket, and net losses are fully deductible as ordinary losses rather than being capped.

Capital gains treatment applies if you argue that Kalshi contracts function as property. Losses can offset gains dollar for dollar, plus up to $3,000 against other income annually, which is friendlier than ordinary treatment in a losing year but requires a defensible position that the IRS hasn't endorsed.

Section 1256 treatment, the aggressive option, would tax 60 percent of gains at long-term capital gains rates and 40 percent at short-term rates, regardless of how long you actually held the contract. This produces the lowest tax bill by a wide margin, which is exactly why it invites the most scrutiny. CFTC registration as a Designated Contract Market alone does not automatically confer Section 1256 status; that requires meeting the daily mark-to-market settlement test under the statute, and no revenue ruling currently confirms Kalshi qualifies. One CPA firm's guidance was blunt about this option: don't take it without a written opinion letter from a tax attorney, because losing that argument in an audit means back taxes plus penalties on top.

Gambling income treatment is, somewhat counterintuitively, now the worst option for most traders. That's a direct result of the One Big Beautiful Bill Act, which capped gambling loss deductibility at 90 percent starting with the 2026 tax year. A trader who wins $50,000 and loses $50,000 in the same year, a net result of zero, can still owe tax on $5,000 of phantom income under this treatment, because only 90 percent of the losses offset the winnings. Whether Kalshi's sports event contracts even count as sports wagering under this rule is itself still pending IRS clarification.

What This Means If You Traded on More Than One Platform

Traders active on both Kalshi and Polymarket face an added wrinkle: those two platforms may fall under different frameworks entirely, meaning ordinary income treatment on one and capital gains treatment on the other within the same tax year. Combine that with a sportsbook like FanDuel or DraftKings, subject to its own OBBBA loss-cap rules, and a single trader's return can require three separate sets of reporting logic depending on where each dollar of profit or loss originated.

State Taxes Add Another Layer

Federal treatment is only half the picture. Most states with an income tax will tax prediction market profits as ordinary income regardless of how you classify them federally, and several states have explicitly stated they have not adopted federal positions like Section 1256 for state purposes. A trader who wins a favorable 60/40 split federally could still see the entire gain taxed at full ordinary rates on their state return. Nine states have no income tax at all, which sidesteps this specific problem but obviously doesn't eliminate the federal question.

Why the IRS Hasn't Weighed In

The most likely explanation, according to tax professionals who've pressed the agency for comment, is that any ruling on prediction market taxation risks colliding with the CFTC's regulatory position on what these contracts actually are. Settling the tax question first would effectively settle the classification question too, and that's not a call the IRS appears eager to make unilaterally while other prediction market litigation is still working through the courts. When CNBC asked directly in July 2026, the IRS declined to comment. With more than $25 billion wagered on World Cup-related contracts alone, pushing the issue into the mainstream, that silence is becoming harder to sustain.

The Real Takeaway

Nobody, including the platforms themselves, can currently give you a definitive answer on how your Kalshi income should be classified, and treating any single source, including this one, as the final word would be a mistake. What every CPA covering this topic agrees on is the one part that isn't ambiguous: the income is taxable regardless of which category it lands in, a form arrives or not, and the gap between now and formal IRS guidance is not a grace period. It's a window where the wrong assumption could cost you in an audit. Talk to a tax professional who has specifically worked with prediction market income before you file, not after.