Are Kalshi event contracts taxable? The 2026 IRS guide for US traders

title: “Are Kalshi event contracts taxable? The 2026 IRS guide for US traders” slug: are-kalshi-event-contracts-taxable post_type: guide meta_title: “Are Kalshi Event Contracts Taxable? 2026 IRS Guide” meta_description: “Are Kalshi event contracts taxable? Yes — and the treatment depends on Section 1256, your 1099, and your state. Honest 2026 breakdown for US traders.” focus_keyword: are kalshi event contracts taxable secondary_keywords: – kalshi taxes – kalshi 1099 – section 1256 prediction markets – kalshi event contract taxes – polymarket vs kalshi tax – prediction market tax treatment – cftc dcm tax – kalshi capital gains – kalshi gambling income tax – state tax kalshi schema: – Article – FAQPage last_updated: 2026-05-28 sub_id: guide-are-kalshi-taxable cro_audit_version: v1 cro_audit_date: 2026-05-28

Last updated: May 28, 2026.

This is informational, not tax advice. Tax law is complex, IRS treatment of prediction-market contracts is still evolving, and individual situations vary widely. Nothing on this page substitutes for a conversation with a Certified Public Accountant (CPA) or tax attorney familiar with your specific situation. We cite the relevant IRS code sections and explain how Kalshi itself reports — but you should verify everything below against current IRS publications and your own advisor before filing.

Newcomer? Start with what prediction markets actually are — the tax conversation makes more sense once the mechanics do. Experienced trader? Skip to Section 1256 treatment for Kalshi contracts — the 60/40 capital-gains split is the headline. Tax-curious / DIY filer? Jump to Record-keeping best practices — the spreadsheet template alone will save you hours at tax time.

As of May 28, 2026, Section 1256 of the Internal Revenue Code, the CFTC’s classification of Kalshi as a Designated Contract Market (DCM), and the actual 1099 form Kalshi mails its US traders form the three load-bearing facts behind every honest answer to “are Kalshi winnings taxable?” Section 1256 governs how regulated futures contracts and certain other CFTC-cleared instruments are taxed; the CFTC’s DCM classification is what arguably pulls Kalshi event contracts under that section; and the 1099 form Kalshi issues is the document the IRS actually sees. Below is the practical guide for a US trader filing in 2026 — sourced from IRS Publication 550, the text of Section 1256(g), Kalshi’s own 1099 documentation, and several CPA-led discussions in the r/PredictionMarkets and r/Kalshi communities.

The short answers

Are Kalshi winnings taxable? Yes — all prediction-market gains are taxable income in the US.
What form does Kalshi issue? A 1099 form summarizing your annual activity; most traders receive a 1099-B or 1099-MISC depending on contract classification.
Section 1256 or ordinary income? Kalshi treats most event contracts as Section 1256 contracts (60% long-term, 40% short-term capital gains) on the basis of its DCM status. Some advisors disagree.
Are losses deductible? Yes — Section 1256 losses are deductible against Section 1256 gains, with a 3-year carryback election available.
Is it taxed differently from Polymarket? Polymarket’s US arm (post-QCEX) is also a CFTC-cleared DCM, so the analysis is similar; offshore Polymarket activity is typically reported as ordinary income or gambling income.
Do I need a CPA? If you trade more than ~$5,000 in annual volume, yes.

TL;DR

Kalshi event contracts are taxable. The interesting question is how they’re taxed — and the answer depends on a section of the Internal Revenue Code most retail traders have never read, the CFTC’s classification of the platform, and the form Kalshi mails you in January.

The current consensus among CPAs serving prediction-market traders: because Kalshi operates as a CFTC-regulated Designated Contract Market (DCM) and its event contracts settle through a registered Derivatives Clearing Organization, most Kalshi contracts qualify for Section 1256 treatment — meaning gains and losses are split 60% long-term capital gains and 40% short-term capital gains, regardless of how long you held the position. That 60/40 split is meaningfully more favorable than ordinary income for traders in higher brackets.

But Section 1256 treatment is not airtight for every Kalshi contract. The IRS has not issued explicit guidance on whether every event contract on a DCM qualifies as a “Section 1256 contract” under the technical definition in IRC §1256(g)(1). Some advisors argue that certain Kalshi contracts — particularly ones tied to political or cultural events rather than economic or financial outcomes — are more conservatively reported as ordinary income or gambling income.

This guide walks through both views, what Kalshi’s 1099 actually shows, how losses work, the state-tax layer, the comparison to Polymarket, and a record-keeping template you can use today. We will be honest about what’s settled and what isn’t, and we will say “ask a CPA” wherever the honest answer is “this is genuinely uncertain.”

How the IRS treats prediction-market winnings

US tax law has three main buckets a Kalshi gain could plausibly fall into:

Section 1256 capital gains. A favorable bucket reserved for certain regulated derivative contracts. Gains and losses are automatically split 60% long-term / 40% short-term, marked to market at year-end, and reported on Form 6781.
Ordinary capital gains. The default bucket for trading gains on most assets. Short-term if held under a year (taxed at ordinary income rates); long-term if held over a year (taxed at preferential rates). Reported on Form 8949 and Schedule D.
Gambling winnings (ordinary income). Income from wagering, taxed at ordinary income rates, with gambling losses only deductible against gambling winnings and only if you itemize. Reported on Schedule 1 as “other income” with losses on Schedule A.

Which bucket applies depends on the legal classification of the underlying contract — and that’s where the CFTC’s DCM regime matters.

The CFTC’s Designated Contract Market regime is a federal regulatory framework that treats event contracts as a category of swap (a derivative financial instrument), not as gambling wagers. Kalshi has been a CFTC-regulated DCM since November 2020 and clears trades through a registered Derivatives Clearing Organization (DCO). Polymarket’s US arm (post-QCEX, December 2025) operates under the same regulatory structure.

The IRS has historically followed the CFTC’s classification on financial-instrument tax treatment. Commodity futures contracts cleared on CFTC-regulated exchanges have been Section 1256 contracts since the 1981 amendments to the Internal Revenue Code. The argument — embraced by most CPAs serving prediction-market traders — is that CFTC-cleared event contracts cleanly inherit that same treatment.

The argument against — voiced by some more conservative tax preparers — is that Section 1256(g) defines a “Section 1256 contract” as one of five specific categories (regulated futures contracts, foreign-currency contracts, nonequity options, dealer equity options, dealer securities futures contracts), and event contracts don’t perfectly match any of those five literal definitions. Under the conservative reading, you’d report Kalshi gains as ordinary short-term capital gains (or even gambling income for sports markets).

The reality on the ground in 2026: most active prediction-market traders are filing Section 1256, Kalshi’s 1099 reporting supports that treatment, and the IRS has not challenged it in any audit we’re aware of. But the question is not legally settled, and a more conservative position is defensible.

Section 1256 treatment for Kalshi contracts

If Section 1256 applies to your Kalshi contracts, the tax consequences are meaningfully different from ordinary capital-gains treatment. Five mechanics matter:

1. The 60/40 split

Regardless of how long you held the position — five minutes or five months — every gain or loss is split:

60% long-term capital gain or loss
40% short-term capital gain or loss

For a trader in the 32% federal bracket who would otherwise pay short-term rates (32%) on every win, the 60/40 split effectively lowers the blended rate to roughly 23–24% (because long-term gains are taxed at 15% or 20% depending on your bracket). The savings compound at high volume.

2. Mark-to-market at year-end

Section 1256 contracts are marked to market on December 31 — meaning any open positions you hold at year-end are treated as if you sold them at the closing market price on that date, for tax purposes. Your “fair market value” on December 31 establishes a new cost basis for the following year.

In practice, most Kalshi traders close out positions before year-end to keep the accounting clean. If you do hold positions across year-end, your 1099-B should reflect the year-end mark-to-market values — verify against your own records.

3. Form 6781 reporting

Section 1256 gains and losses are reported on Form 6781 — Gains and Losses From Section 1256 Contracts and Straddles. The form is straightforward: total Section 1256 gains, total Section 1256 losses, net amount, then split 60/40 and carry the long-term portion to Form 1040 Schedule D Line 4 and the short-term portion to Line 5.

4. Loss carryback election

This is the headline advantage of Section 1256 most traders miss. Section 1256 losses can be carried back up to 3 years to offset prior-year Section 1256 gains, generating an immediate refund. To claim the carryback, file Form 1045 within one year of the loss year.

This is a substantial benefit. If you had a $20,000 Kalshi win in 2024 and a $15,000 Kalshi loss in 2026, you can amend your 2024 return to offset $15,000 of that prior gain — recovering taxes you’ve already paid.

5. No wash-sale rule

Section 1256 contracts are exempt from the wash-sale rule (which would otherwise disallow a loss if you re-bought a substantially identical position within 30 days). You can sell a losing Kalshi contract and immediately re-enter the same market without losing the loss deduction. For active traders, this matters.

The honest caveat: the entire Section 1256 framework assumes the IRS accepts that your specific Kalshi contracts qualify under §1256(g)(1). For event contracts that are functionally cleared like regulated futures (e.g., Fed rate decisions, jobless claims, GDP prints), the case is strong. For event contracts on more idiosyncratic outcomes (e.g., culture markets, certain political contracts), the case is weaker. Talk to your CPA about category-by-category treatment if you trade across the spectrum.

The 1099 form Kalshi issues

Kalshi mails its US traders a 1099 in late January each year covering the prior tax year’s activity. The exact form depends on contract type and your filing situation:

Form 1099-B — Proceeds from Broker and Barter Exchange Transactions. This is what most active Kalshi traders receive. It reports the gross proceeds from sales/closes of event contracts, the cost basis, and a summary of Section 1256 activity in Box 8–11 (if applicable). Kalshi’s 1099-B explicitly flags Section 1256 contracts in Box 8.
Form 1099-MISC. Some Kalshi accounts — particularly older accounts or accounts with mixed activity — may receive a 1099-MISC with prediction-market winnings reported in Box 3 (Other Income) instead of (or in addition to) the 1099-B. If you receive a 1099-MISC, your CPA may treat the reported amount as ordinary income rather than Section 1256 capital gain.
Form 1099-INT. If Kalshi paid you interest on your cash balance (the platform pays ~3.50% APY as of 2026), interest income is reported separately on a 1099-INT.

Where to find your Kalshi 1099: sign in to your Kalshi account, navigate to Account → Tax Documents. Kalshi posts 1099 forms in late January (typically by January 31) and emails account holders when they’re ready. Download a copy for your records, and provide it to your CPA when preparing your return.

A common source of confusion: the dollar amount on your Kalshi 1099-B may not match your own running total of “wins minus losses.” That’s usually because the 1099 reports gross proceeds (every closing trade as a separate transaction), not net P&L. The cost basis column nets out to your actual gain/loss. If the numbers don’t reconcile, export your full trade history (also available under Account → Statements) and walk through it line-by-line with your accountant.

What r/Kalshi actually says about the 1099:

“First year I traded any size on Kalshi, I just handed the 1099-B to my CPA and let her figure it out. She put it on Form 6781 as Section 1256, the 60/40 split saved me maybe $1,200 in federal tax versus treating it all as short-term. Worth every penny of her fee.”

— Synthesis of three r/Kalshi tax-season threads, March–April 2026

State tax considerations

Federal tax treatment is one layer; your state’s tax treatment is another, and the two don’t always align.

Three patterns to be aware of:

States that follow federal treatment. Most states with an income tax base their starting point on your federal adjusted gross income (AGI) and follow federal Section 1256 treatment automatically. If you’re a California, New York, or Massachusetts resident, your state tax on Kalshi gains usually mirrors the federal treatment, with the state’s own rate applied.
States with no income tax. Florida, Texas, Tennessee, Washington, Nevada, South Dakota, Wyoming, Alaska, and New Hampshire (no wage tax) have no state income tax on prediction-market gains. Federal tax still applies.
States that may classify differently. A small number of states — and an even smaller number of state-level tax preparers — argue that prediction-market gains should be reported as state-level gambling income, particularly for sports event contracts. New Jersey, Pennsylvania, and Indiana have some history of treating offshore gambling income differently from federal treatment. We’re not aware of any state taking an enforcement action against a Kalshi user specifically on this basis, but it’s a live possibility for sports-only traders in those states.

State sports-contract litigation matters here. Several states — Nevada, Massachusetts, New Jersey, Tennessee, Florida — are actively contesting whether CFTC-cleared sports event contracts on platforms like Kalshi and Polymarket are legal under state gambling law. If a future court ruling reclassifies sports event contracts as gambling at the state level, the state-tax reporting basis for those contracts could change for prior years. Conservative traders in those states sometimes elect to report sports event contract gains as gambling income at the state level even while reporting Section 1256 federally.

For state tax specifically, ask a CPA licensed in your state. State tax is more variable than federal, less documented online, and the consequences of getting it wrong are sometimes audit-triggering at the state level even when the federal return is clean.

How Kalshi tax treatment compares to Polymarket

A common question: if I trade on both platforms, do I file them the same way?

Polymarket US (post-QCEX, January 2026): Polymarket’s US-facing arm operates as a CFTC-regulated Designated Contract Market through QCEX, the DCM Polymarket acquired in December 2025. Functionally, that puts Polymarket US under the same regulatory umbrella as Kalshi for tax purposes — most CPAs are treating Polymarket US gains as Section 1256 contracts on the same basis as Kalshi. Polymarket US is moving toward 1099 reporting in 2026; verify in your account what tax documents you’ll receive.

Polymarket global (decentralized, self-custody): if you trade on Polymarket’s global product via your own wallet without going through the US entity, the tax picture is different and more uncertain. The platform doesn’t issue a 1099 to non-US-app users, so reporting is entirely your responsibility. Most CPAs in this situation report gains as either:

Ordinary capital gains — short-term if positions held under a year, long-term if held over. Reported on Form 8949 and Schedule D.
Gambling income — reported as “other income” on Schedule 1. This is the more conservative position; some preparers default to it when there’s no clean DCM clearing path.
Section 1256 — some sophisticated preparers still argue this position for sufficiently financial-instrument-like contracts (e.g., crypto price markets), but the case is weaker without a US DCM clearing path.

The practical takeaway: if you trade primarily on Kalshi or Polymarket US, your tax life is relatively clean — you’ll get a 1099 and a CPA can handle the rest. If you trade on Polymarket’s global product or any offshore platform, you’ll need to track every position yourself and discuss reporting basis with your CPA. See our companion guide on how to fund Polymarket for more on the US vs. global product distinction.

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Record-keeping best practices

The single biggest favor you can do your future self at tax time is to keep clean records throughout the year. The platforms’ own statements are helpful, but they don’t always have everything your CPA needs — and they don’t help you spot accounting errors before April.

The five-column trade log. Maintain a simple spreadsheet (Google Sheets or Excel) with these columns:

Date	Market	Side (YES/NO)	Quantity	Price	Cost basis	Date closed	Close price	Proceeds	Net P&L
2026-01-15	Fed cuts Mar 26	YES	100	$0.45	$45.00	2026-01-22	$0.62	$62.00	+$17.00
2026-02-03	NFL Eagles W17	NO	50	$0.30	$15.00	2026-02-05	$0.00 (lost)	$0.00	-$15.00

At year-end, sum the Net P&L column. That total should reconcile to within rounding to your 1099-B’s net amount. If it doesn’t, walk through line-by-line to find the discrepancy — there’s almost always a closed-but-not-recorded trade or a fee adjustment you missed.

Save platform statements monthly. Kalshi posts monthly account statements under Account → Statements. Download each month’s statement as a PDF and save to a tax-year folder on Google Drive, Dropbox, or your local file system. At year-end you’ll have 12 PDFs that reconcile to your 1099 and back up every line of your trade log.

Document withdrawals and deposits. A common audit-trigger isn’t your trading P&L itself; it’s the bank-side flow of money in and out of the platform. Keep your bank’s monthly statements and tag every transfer to/from Kalshi clearly. ACH transfers to “Kalshi” or “QCEX” should be obvious on your bank statement; document any unusual transfers (debit-card top-ups, wire transfers).

Note fees separately. Kalshi’s per-contract fees are netted into your 1099-B cost basis automatically. But interest credit (3.50% APY on cash balances), referral credits, and welcome bonuses are reported separately — interest on a 1099-INT, bonuses sometimes on a 1099-MISC. Don’t double-count.

Use a tax-prep tool if your volume is meaningful. For traders doing more than 50 trades a year on Kalshi, CoinTracker and Cointracking (yes, despite the names — both handle Section 1256 reporting and have Kalshi integrations) are commonly used to automate the math. Verify the output against your spreadsheet, then hand both to your CPA.

How losses work

Kalshi losses are deductible, but the rules differ depending on which tax bucket your gains fall into.

Under Section 1256

If your Kalshi contracts qualify for Section 1256 treatment:

Losses offset gains within Section 1256. Net out all your Section 1256 gains and losses for the year on Form 6781. A net Section 1256 loss can offset Section 1256 gains in any tax year.
Net Section 1256 losses can be carried back 3 years. This is the headline benefit. If you have a $10,000 net Section 1256 loss in 2026, you can elect to carry it back to 2023, 2024, or 2025 to offset Section 1256 gains in those years — generating an immediate refund of taxes you already paid. File Form 1045 — Application for Tentative Refund within one year of the loss year.
Unused losses carry forward indefinitely. Net Section 1256 losses that aren’t carried back continue to carry forward as Section 1256 losses (60/40 split) against future Section 1256 gains, without expiration.

Under capital gains (non-1256)

If your contracts are treated as ordinary capital assets:

Losses offset gains. Net short-term losses offset short-term gains; net long-term losses offset long-term gains.
Net capital losses up to $3,000 per year ($1,500 if married filing separately) can offset ordinary income.
Excess net capital losses carry forward indefinitely.

Under gambling income

If your contracts are treated as gambling winnings (the most conservative position, used by some preparers for sports event contracts in restrictive states):

Gambling losses are only deductible if you itemize (Schedule A), and only up to the amount of your gambling winnings for the year. There is no carryback or carryforward of net gambling losses.
For most retail traders who take the standard deduction, this means gambling losses are effectively non-deductible. This is the worst bucket for tax purposes.

The honest takeaway: Section 1256 treatment is materially more favorable than gambling treatment, particularly for traders with significant losses. That favorable treatment is why most CPAs work hard to qualify Kalshi contracts under Section 1256 when defensible.

Withholding and estimated taxes

Kalshi does not withhold federal or state income tax on your trading gains. Unlike a paycheck, your platform balance is yours in full as gains accrue, and the tax liability is yours to plan for.

If your Kalshi trading produces meaningful annual gains (more than ~$1,000), you likely need to make quarterly estimated tax payments to the IRS to avoid an underpayment penalty. The IRS’s safe-harbor rule says you avoid the underpayment penalty if you pay either (a) 90% of the current year’s tax liability, or (b) 100% of last year’s tax liability (110% for high earners), through withholding and quarterly estimates.

For a Kalshi trader with $30,000 in annual Section 1256 gains in the 24% federal bracket plus 5% state, that’s roughly $7,200 in federal + $1,500 in state = ~$8,700 in additional annual tax. Spread across four quarterly payments, that’s roughly $2,175 per quarter — due April 15, June 15, September 15, and January 15 of the following year.

A CPA can run the safe-harbor math for your specific situation. Underpayment penalties are typically 7–8% annualized as of 2026 — meaningful but not crippling, and easily avoided with a quarterly-payment plan.

Common Kalshi tax mistakes

The five mistakes we see most often in r/Kalshi and r/PredictionMarkets tax-season threads:

1. Ignoring the 1099. Some traders don’t realize Kalshi issues a 1099 (the IRS gets a copy automatically) and don’t include the income on their return. The IRS’s automated matching system catches this within 12–18 months; the resulting CP2000 notice plus penalties and interest is much worse than filing correctly the first time.

2. Reporting gross proceeds without cost basis. The 1099-B’s gross proceeds column is not your taxable income. The net of proceeds minus cost basis is. Some self-preparers transcribe only the proceeds figure to Schedule D and report a wildly inflated gain. Always reconcile to your trade log.

3. Mixing Kalshi and Polymarket reporting incorrectly. If you trade on both, each platform’s 1099 goes on its own line in your tax preparation. Don’t combine them into a single line item — your CPA needs to see the per-platform detail in case the IRS asks.

4. Skipping the loss carryback election. Section 1256 losses are 3-year-carrybackable, but most traders don’t know it exists and most off-the-shelf tax software doesn’t suggest it. If you have a losing year on Kalshi and had a winning year in 2023, 2024, or 2025, talk to your CPA about Form 1045.

5. Treating interest income as Section 1256. Kalshi’s 3.50% APY interest on cash balances is interest income (reported on 1099-INT, taxed as ordinary income), not a Section 1256 gain. Don’t bury it inside your Form 6781 totals.

What r/PredictionMarkets actually says about CPAs:

“Spent two hours interviewing CPAs before tax season. The one I picked had actually heard of Section 1256, had Kalshi 1099s on file from prior clients, and didn’t blink when I mentioned the 60/40 split. The first three CPAs I called wanted to put everything on Schedule 1 as ‘other income’ and called it a day. Find someone who knows the regime.”

— Composite of r/PredictionMarkets CPA-recommendation threads, March 2026

When to consult a CPA

If you trade on Kalshi at any meaningful volume, getting a CPA on your team is worth the fee. The breakpoints we’d suggest:

Under $1,000 in annual gains: TurboTax Premier or a similar self-prep tool is usually fine. Section 1256 reporting is supported by most major consumer tax software.
$1,000 – $5,000 in annual gains: A CPA-prep consultation (one-time, $200–$500) at tax time is worth it for the assurance that you’re filing correctly. You might still self-prep the rest of your return.
$5,000 – $25,000 in annual gains: Full CPA engagement at tax time, ideally one with prior prediction-market clients. Cost typically $400–$1,200 for the prep.
Over $25,000 in annual gains: Year-round CPA relationship including quarterly estimated-tax planning, possibly with tax-loss harvesting and entity-structure discussions if you’re considering an LLC or sole proprietorship. Cost varies widely.

How to find a Kalshi-savvy CPA. The honest path in 2026: ask in r/Kalshi, r/PredictionMarkets, or the Bogleheads forum for recommendations in your state. Many CPAs are still unfamiliar with event-contract tax treatment; you want one who’s filed Section 1256 returns for prediction-market clients before. The American Institute of CPAs (AICPA) maintains a searchable directory, but the platform-specific experience filter is something you need to ask about directly.

Where to go next

If you’ve made it through the depth on Kalshi taxes, the rest of the tax conversation depends on what else you’re trading and where:

Trading on Polymarket too? How to fund Polymarket covers the funding mechanics; the tax treatment of Polymarket US gains mirrors Kalshi closely under the QCEX-cleared structure.
Trying to decide between platforms? Compare Kalshi vs Polymarket head-to-head — including fee structures that affect your after-tax outcomes.
Want the safety framework first? Is Polymarket safe in 2026? walks through the legal and financial risk buckets that underpin the tax conversation.

What’s next for you

If you’ve read this far, you’re past “what is this?” and into “how should I actually report it?” Here’s where to go next:

You want to pick a platform first → Kalshi vs Polymarket head-to-head
You want the funding mechanics → USDC, Apple Pay, ACH — every method
You want the safety framework → The Polymarket safety guide

FAQ

Are Kalshi event contracts taxable in the US?

Yes. All Kalshi winnings are taxable income at the federal level, and at the state level in states with income tax. The exact treatment (Section 1256, ordinary capital gains, or gambling income) depends on the contract category and your CPA’s filing position. Most active Kalshi traders file Section 1256 on the basis of Kalshi’s CFTC DCM status.

What is Section 1256 treatment and why does it matter?

Section 1256 of the Internal Revenue Code applies to certain regulated derivative contracts. It splits all gains and losses 60% long-term capital gain / 40% short-term capital gain, regardless of holding period; marks open positions to market at year-end; and allows 3-year loss carrybacks. For traders in higher brackets, Section 1256 treatment can save 5–10 percentage points of effective tax rate versus pure short-term capital gains.

Does Kalshi issue a 1099?

Yes. Kalshi mails a 1099 — typically 1099-B for trading activity, plus 1099-INT for interest on cash balances, plus 1099-MISC in some cases — in late January each year, covering the prior tax year. Sign in to your Kalshi account and navigate to Account → Tax Documents to download yours.

Can I deduct Kalshi losses?

Yes, but how depends on tax treatment. Under Section 1256, losses offset gains within Section 1256 and can be carried back up to 3 years on Form 1045. Under ordinary capital gains treatment, losses offset capital gains plus up to $3,000 per year against ordinary income, with indefinite carryforward. Under gambling treatment, losses are only deductible if you itemize and only up to the amount of winnings.

How is Kalshi taxed compared to Polymarket?

Kalshi and Polymarket US (post-QCEX, January 2026) are both CFTC-regulated DCMs and are taxed similarly — most CPAs apply Section 1256 treatment to both. Polymarket’s global decentralized product (self-custody) doesn’t issue 1099s and reporting is entirely on the trader; positions there are typically reported as ordinary capital gains or gambling income depending on the preparer.

Do I owe state tax on Kalshi winnings?

If you live in a state with income tax, yes — most states follow federal AGI and apply state rates accordingly. States with no income tax (Florida, Texas, Tennessee, Washington, Nevada, South Dakota, Wyoming, Alaska, New Hampshire) have no state tax on Kalshi gains. A small number of states may treat sports event contracts differently as gambling income at the state level.

Does Kalshi withhold tax on my winnings?

No. Kalshi does not withhold federal or state income tax. You’re responsible for quarterly estimated tax payments if your gains are large enough to trigger an underpayment penalty (generally $1,000+ in annual tax liability that isn’t otherwise covered by withholding).

What if I forgot to report Kalshi income in a prior year?

File an amended return (Form 1040-X) for the affected year as soon as possible. The IRS’s automated matching system will catch unreported 1099 income within 12–18 months, and the resulting CP2000 notice includes back tax plus penalties and interest. Voluntary correction before the notice arrives reduces penalties substantially.

Can Kalshi cash balances earn taxable interest?

Yes. Kalshi pays roughly 3.50% APY on cash balances and open positions as of 2026, and this is interest income reported on a 1099-INT, taxed at ordinary income rates — not as a Section 1256 gain. Keep it separated from your trading P&L.

When should I hire a CPA for Kalshi taxes?

If your annual Kalshi gains exceed roughly $5,000, a CPA engagement at tax time pays for itself in correctly-claimed Section 1256 treatment and avoided errors. For traders above $25,000 in annual gains, a year-round CPA relationship including quarterly estimated-tax planning is worth considering.

Do welcome bonuses count as taxable income?

Yes. Sign-up bonuses, referral credits, and trading-credit promotions from Kalshi are generally treated as taxable income — usually reported on 1099-MISC or as part of your 1099-B if used to make trades. Document promotion-credit amounts when you receive them.

Is there special tax treatment for sports event contracts?

Possibly. Most CPAs treat Kalshi sports event contracts the same as other Kalshi contracts (Section 1256). But because several states are actively contesting whether sports event contracts are CFTC-regulated derivatives or state-regulated gambling, some traders in restrictive states elect a more conservative position — reporting sports event contracts as gambling income at the state level while preserving Section 1256 federally. Ask your CPA.

Final reminder on professional advice

This is informational, not tax advice. Tax law changes frequently. The Section 1256 framework discussed here is the current CPA consensus for Kalshi traders, not an IRS-issued ruling. Individual circumstances — state of residence, total income, business structure, mix of contract types — change the analysis materially.

Before filing a return based on the framework discussed in this guide, consult a Certified Public Accountant (CPA) familiar with prediction-market trading. A one-time consultation costs a few hundred dollars and is the cheapest insurance you can buy against an IRS audit. We will not respond to “do my taxes” questions in email or comments — find an advisor licensed in your state.

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Where to go next

If you’ve digested the depth here, the most useful next steps depend on what you came to figure out:

Compare the platforms first → Kalshi vs Polymarket on fees, liquidity, and state availability
Understand Kalshi’s CFTC posture in depth → our Kalshi breakdown
Set up Polymarket as a US trader → how to fund a Polymarket account
Verify the legal layer → are prediction markets legal

We may receive affiliate commissions when you sign up via links on this site. Learn more (FTC disclosure). Trading event contracts involves risk of loss — you can lose your entire stake. Nothing on this page is tax advice; consult a CPA for your specific situation.

By Dana Okafor · Senior Legal Correspondent, Bellwether · Last updated: May 28, 2026 — we update this page when IRS guidance changes, Kalshi adjusts its 1099 reporting, or new platform-specific tax issues emerge.

Next: Are prediction markets legal? A US state-by-state guide