Michigan gambling winnings tax and Kalshi legal status

Michigan taxes income at a flat 4.25% for tax year 2025.

The City of Detroit levies a city income tax.

Short-term gains are taxed like other income at 4.25%.

Michigan allows gambling losses only if you itemize on your federal return. Since 2021, you subtract on Schedule 1 the wagering losses you deducted on federal Schedule A. Nonresidents subtract only losses from wagers placed at a Michigan casino or race track, up to winnings from those. Other federal itemized deductions are not allowed.

• Winnings are taxable to the extent they are included in federal AGI. Nonresidents are taxed on winnings from Michigan casinos, race tracks and the lottery.
• You must have itemized on your federal return. If you took the federal standard deduction, you can't claim the Michigan subtraction.
• Michigan withholds 4.25% from nonresidents on reportable winnings at Michigan casinos, racetracks and off-track betting. Charitable gaming winnings are also covered.
• Michigan's subtraction is the amount you deducted on federal Schedule A, so the federal 90% limit carries through from 2026.

Michigan taxes gambling winnings at its flat 4.25% rate, to the extent they are in your federal adjusted gross income. Losses only help if you itemized on your federal return: Michigan then subtracts, on Schedule 1, the wagering losses you deducted on federal Schedule A.

Take $10,000 of winnings and $8,000 of losses in 2026, for a Michigan resident:

Because the subtraction is the amount on your federal Schedule A, the federal 90% rule carries over. Michigan Treasury hasn’t published its 2026 instructions to confirm that. Detroit residents also owe city income tax, which the example leaves out, and federal tax on the same winnings is separate: the gambling loss calculator runs it.

If you report Kalshi or Polymarket trades as capital gains on your federal return, Michigan starts from that federal figure and taxes the net gain at the same 4.25%.

As of October 27, 2026, Kalshi, Robinhood and Coinbase are barred or have agreed to stop offering sports event contracts to people in Michigan. A state judge ordered Kalshi to block Michigan users from its sports contracts on Sept. 1, 2026, and Robinhood and Coinbase signed agreements with the state. Polymarket US lost a bid for a federal injunction and its appeal is on hold.

States say prediction market sports contracts are bets that their gambling laws cover, while Kalshi and the CFTC say they are swaps, a kind of derivative that only the federal Commodity Exchange Act and the CFTC regulate. The Third Circuit appeals court sided with Kalshi against New Jersey in April 2026, while the Ninth Circuit (Nevada, August 2026) and the Sixth Circuit (Ohio and Tennessee, September 2026) ruled for the states, all at the preliminary stage. The Fourth Circuit (Maryland) heard argument in May 2026 and had not ruled as of November 3. New Jersey's petition to the Supreme Court, Flaherty v. KalshiEX (No. 26-299), is waiting on Kalshi's response due December 7, 2026, and the Court has not yet said whether it will hear the case. On October 9, 2026 the CFTC proposed a rule defining event contracts as swaps.

The IRS hasn’t said how prediction market trades are taxed, so you pick one of four federal methods: capital gains, ordinary income, gambling or Section 1256. Michigan starts from your federal figures, so the method you choose federally generally carries onto your state return. If you report as gambling, the loss rules above apply. The four methods, compared.

The court cases are about whether Michigan can license or stop the platforms. None of them decides how your trades are taxed. Trades you already made, including positions an order made you close, still count in your tax year.