Prediction Markets vs. Sportsbooks: How the Taxes Differ

A sportsbook treats your bets as gambling: it sends a W-2G on big wins and can withhold 24%. Kalshi and Polymarket send no form for your trading profit and withhold nothing, and the IRS hasn’t said whether those trades are gambling at all. That one difference changes how losses work, whether the 60/40 rule is possible, whether the 90% gambling loss cap applies to you, and whether a bad year on one can soften a good year on the other.

How do prediction market and sports betting taxes compare?

Is Kalshi a sportsbook?

Kalshi says no. It’s a CFTC-regulated exchange where you buy and sell contracts with other traders, and the CFTC treats those contracts as derivatives. Several states disagree. Massachusetts argues in court that “despite Kalshi calling its product ‘event contracts,’ consumers are placing wagers on the outcome of sporting events,” as quoted in a 2026 KPMG report on how these contracts should be reported. Where each state stands.

A state calling something a wager doesn’t settle how it’s taxed federally, and the IRS hasn’t ruled on event contracts at all. That’s why the same Kalshi trade can be reported four different ways.

Who sends a W-2G or 1099, and who withholds?

A sportsbook is a gambling payer under the tax rules. For payments in 2026, it sends a W-2G when a sports win is at least $2,000 and at least 300 times your stake, and it withholds 24% when the win minus the stake is more than $5,000 on a bet that pays 300 times. Without your Social Security number on file it can withhold 24% as backup withholding instead. Sports betting taxes, in full.

Kalshi and Polymarket aren’t treated as gambling payers today. Kalshi sends forms for interest and rewards, not for your trades, and polymarket.com sends nothing. What Kalshi does send.

KPMG’s report walks through the options. Under existing guidance, it says, W-2G reporting is “unlikely” if the contracts are respected as CFTC-regulated derivatives. It sees strong arguments for Form 1099-B, the broker form, and a reasonable argument for no 1099 at all. It also notes that “not all CFTC regulated venues appear to report on Form 1099-B,” so what arrives in your mailbox depends on the app.

How do losses work on each?

Sportsbook losses are gambling losses: they only count if you itemize, only against gambling winnings, and from 2026 only 90% of them. Prediction market losses follow the method you pick. Under capital gains they offset gains and up to $3,000 of other income a year, with the rest carried forward. Under Section 1256 a net loss can also be carried back three years. Losses, method by method.

Who does the 90% rule hit hardest?

From 2026, gambling losses count only up to 90%. A sports bettor who wins $50,000 and loses $50,000 over the year broke even, but can deduct only $45,000 of losses, so pays tax on $5,000 that never existed. That’s only if they itemize. Without itemizing, they pay tax on the full $50,000.

The same break-even year on Kalshi, reported as capital gains or ordinary income, is a $0 result. The 90% cap applies only if you choose the gambling method for your prediction market trades. How the 90% cap works.

Do prediction market losses offset sportsbook winnings?

It depends on how you report your prediction market trades.

• Kalshi as gambling: your trades and your sportsbook bets are all wagering, so a loss on either can count against winnings on either, as a gambling loss on Schedule A. You still have to itemize, and only 90% of losses count from 2026.
• Kalshi as capital gains: a net Kalshi loss can reduce your other income, sportsbook winnings included, by up to $3,000 a year. Sportsbook losses can’t reduce Kalshi capital gains, because gambling losses only offset gambling winnings.
• Kalshi under Section 1256: same $3,000 limit against other income, with the option to carry a net loss back three years against past 60/40 gains.

You can’t mix and match by trade. Pick one method for your prediction market trades for the year. The four methods.

Why can DraftKings and FanDuel be taxed two ways?

DraftKings and FanDuel now run prediction markets next to their sportsbooks, and the two products are taxed differently even inside one app.

• DraftKings Predictions runs on DraftKings’ own CFTC-regulated exchange, DKeX. Those trades are event contracts. DraftKings Sportsbook bets are gambling. DraftKings Predictions taxes.
• FanDuel Predicts offers sports contracts from Crypto.com’s exchange and financial contracts from CME. Those are event contracts too; FanDuel Sportsbook bets are gambling. FanDuel Predicts taxes.

Keep the two sides apart in your records. A W-2G from the sportsbook side doesn’t cover your prediction trades, and your prediction trades don’t belong on the sportsbook’s win/loss statement.

Where does each go on your return?

Reporting Kalshi and Polymarket, line by line.

What records should you keep?

• Each sportsbook’s win/loss statement and any W-2Gs.
• Your Kalshi exports or Polymarket wallet history, since no form shows your trading result.
• A note of which method you used for prediction markets, so next year matches.

Questions about prediction market and sports betting taxes

WagerMints prices your Kalshi or Polymarket year four ways, so you can see which method leaves room for your sportsbook losses and which doesn’t. The 2026 gambling loss calculator does the sportsbook side.