Betting on the Midterms? How Election Contracts on Kalshi and Polymarket Are Taxed

Election contracts are taxed like every other event contract. The IRS hasn’t said how, so you pick one of four methods, and you owe in the year a position is sold or settles, not on Election Day. That timing matters for the November 3 midterms: a market that settles in 2027 goes on your 2027 return, unless you report under Section 1256. Nothing is withheld either, so a big win arrives at tax time with no tax paid on it.

How big did midterm election betting get?

More than $1.4 billion had traded on 2026 midterm markets by October 23, according to a CNN analysis. Kalshi said its midterm markets had seen nearly $1.1 billion, across race winners, control of the House and Senate, turnout, endorsements and debates. Polymarket said more than $340 million, counting both its U.S. exchange and its offshore site.

That’s a lot of first-time election traders who will meet the tax question in April 2027. The rules below apply whether you bet $20 on a Senate race or held thousands of contracts on control of the House.

Why is election betting legal on Kalshi?

Kalshi sued the CFTC in 2023 for the right to list contracts on which party controls Congress, won in federal court in 2024, and the case closed in May 2025 after the CFTC dropped its appeal (the docket). Election markets have run on Kalshi since, and Polymarket lists them on both its U.S. exchange and polymarket.com.

The exchanges also police who can trade. Kalshi has suspended six 2026 candidates for betting on their own races, CNN reported.

How are election contracts taxed?

Nothing in the tax code singles out election contracts. They get the same four possible treatments as a contract on rain, rates or a football game:

• Capital gains: each sale or settlement on Form 8949, usually short-term, so taxed at your ordinary rate.
• Ordinary income: one net figure on Schedule 1.
• Gambling: winnings in full, losses only if you itemize, and only 90% of them from 2026.
• Section 1256 (60/40): 60% of the gain at long-term rates. It can only be argued for contracts on a CFTC-regulated exchange such as Kalshi or Polymarket US, never polymarket.com.

Most of the published argument that event contracts are gambling is about sports contracts. Nobody with authority has ruled on election contracts either way. Where the experts land.

What does one House contract cost under each method?

You buy 1,000 Yes contracts on a party winning the House at 60 cents, $600 in total. The market settles Yes at $1, so you get $1,000 and make $400. You’re a single filer in the 22% bracket. Fees are left out to keep the numbers clean; in practice they reduce the gain.

On a single winning trade the methods barely differ. They split apart when you also have losing contracts, because each method treats losses differently. That’s where the choice of method moves your bill by hundreds or thousands of dollars.

Which tax year does a midterm bet count in?

You’re taxed when you sell a contract or when it settles. Each market’s rules say when it settles, and control-of-Congress markets settle only once control is decided. If close races drag on, that can be weeks after November 3.

• Sold or settled in 2026: it’s on your 2026 return.
• Settles in 2027: under three of the methods, it’s on your 2027 return.
• Under Section 1256: a position still open on December 31 is treated as sold at its year-end value, so the gain or loss up to that date counts in 2026 anyway.

Is selling before the result taxable?

Selling a contract before the race is called is a sale, taxed in the year you sell, at the price you sold for minus what you paid. Many traders sell on election night as odds swing. Each of those sales is its own line under the capital gains method, and its own result under the others. Kalshi’s exports list every fill, so keep them for the whole year, not just the settled markets.

Combos that pair several races into one contract are taxed the same way: one contract, one gain or loss when it’s sold or settles.

What if your side loses?

A losing election contract is worth what your method allows. Under capital gains it offsets gains and up to $3,000 of other income a year, with the rest carried forward. Under gambling it only counts if you itemize, only against gambling winnings, and only at 90%. Under Section 1256, a net loss can also be carried back three years against earlier 60/40 gains.

Say you made $400 on the House contract above and lost $600 on a Senate contract. Under capital gains you have a $200 net loss that reduces your other income. Under the gambling method, if you don’t itemize, you pay tax on the $400 win and the $600 loss counts for nothing. How losses work, method by method.

Do you owe estimated tax on a big election win?

Kalshi and Polymarket don’t withhold tax from trading profit, and Kalshi doesn’t send a form for it either. What Kalshi does send. If a big win settles in November or December, the fourth-quarter estimated payment for 2026 is due January 15, 2027.

You avoid an underpayment penalty if your withholding and estimated payments for 2026 cover the smaller of 90% of this year’s tax or 100% of last year’s (110% if last year’s income was over $150,000), per IRS Topic 306. If your paycheck withholding already covers last year’s tax (110% of it above $150,000), you can pay the rest in April without a penalty.

Do state rules differ on election betting?

Some states treat election contracts the way they treat sports contracts. Arizona’s March 2026 criminal charges against Kalshi include election wagering, though a federal court has blocked that prosecution. Nevada’s court orders cover election contracts, and the Ninth Circuit sent the election question in Kalshi’s federal case back to the district court.

Your state also taxes the profit on top of federal tax, and a few states don’t let you deduct gambling losses at all, which matters if you use the gambling method. Your state’s tax rules and legal status.

Questions about election betting taxes

WagerMints prices your Kalshi or Polymarket year under all four methods, election contracts included, so you can see which one fits your wins and losses. How prediction market trades are taxed.