Prediction Market Winnings Tax Guide (2026)

Prediction markets and event-contract platforms saw significant growth through 2025 and into 2026, drawing a new wave of traders into markets that settle real-world outcomes — from election results to flight delays. With that growth comes an inevitable question: how are the winnings taxed?

The short answer: it depends — on your jurisdiction, your platform, your residency status, and even the currency in which your positions settle. On a platform that settles in USDT, there may be an additional layer of taxable events under your country’s cryptocurrency rules.

This guide is a purely educational overview. It maps the main frameworks tax authorities have applied or discussed for prediction market and event-contract winnings, explains the USDT layer, and shows why professional advice is essential before you file. Gaduin is an offshore event-contracts exchange with USDT settlement — not a tax advisor.

Disclaimer: This article is for educational purposes only and does not constitute tax, legal, or financial advice. Tax treatment varies by jurisdiction, platform type, and individual circumstances. Always consult a qualified tax professional.

Why There’s No Single Tax Answer

No Formal Guidance in Most Jurisdictions

The most important thing to understand about prediction market taxation is what doesn’t exist: a clear, universal rulebook.

Most major tax authorities have not issued dedicated guidance on prediction market or event-contract winnings. The US Internal Revenue Service has published no ruling that specifically addresses platforms such as Polymarket, Kalshi, or offshore event-contract exchanges. Tax professionals must reason by analogy — mapping these instruments onto categories such as ordinary income, capital gains, or, in some jurisdictions, gaming-activity receipts.

Industry commentary — a 2023 analysis by Thomson Reuters Tax and a practitioner note from the National Association of Tax Professionals (NATP), neither of which is tax-authority guidance — flagged the absence of IRS direction as a source of significant uncertainty as prediction market contracts began appearing on client tax returns in volume. Regulatory silence signals contested classification, not permission to ignore the issue.

Platform Type and Regulatory Status Affect Classification

Not all prediction markets are created equal from a regulatory standpoint, and those differences matter for tax treatment.

A platform operating as a designated contract market (DCM) under Commodity Futures Trading Commission (CFTC) oversight sits in a different legal category from an offshore event-contract exchange. CFTC-regulated contracts may qualify for specific treatment under US law precisely because of that designation; offshore platforms — most exchanges accessible to non-US traders — fall outside that framework entirely.

Gaduin is an offshore event-contracts exchange. It is not regulated by the CFTC, and it does not solicit US persons. For users outside the United States, the absence of a US regulatory umbrella is simply the starting point: their own jurisdiction’s rules apply, and those rules vary substantially.

Settlement Currency — Especially Crypto — Adds a Layer

A third variable is how your winnings are delivered. Cash-settled contracts on traditional exchanges produce a straightforward receipt. Event contracts that settle in USDT — a stablecoin — introduce a layer of potential complexity.

In many jurisdictions, stablecoins are treated as property (or a form of cryptocurrency), not as cash. That distinction can mean that receiving USDT as settlement, withdrawing it, or converting it into another asset all constitute taxable events — entirely separate from any gain or loss on the underlying event contract itself.

Common Tax Frameworks — An Educational Overview

Tax authorities and practitioners have broadly identified three or four frameworks through which prediction market and event-contract winnings might be analysed. None of this is advice about which framework applies to you — that depends on jurisdiction, circumstances, and platform. For the concrete forms and dollar thresholds on US-regulated venues in the 2026 filing year, see the next section.

Ordinary Income Treatment

The most conservative — and in some jurisdictions, the default — approach treats net profits from event contracts as ordinary income, reported alongside wages, consulting fees, and other non-capital receipts: each closed position produces income equal to proceeds minus cost.

This treatment is common where no statutory framework provides an alternative and the taxpayer cannot demonstrate that the contracts are held as capital assets.

Capital Gains Treatment

An alternative analysis treats event-contract positions as capital assets: gain or loss is calculated on settlement or early exit, at a rate depending on holding period and jurisdiction.

Capital gains treatment is most relevant where the contract can be characterised as a financial instrument or property right, and where the taxpayer holds a portfolio of positions rather than trading on a purely discretionary basis. Short-term and long-term distinctions — and their rates — vary significantly by country.

Gaming and Speculative Activity Treatment

In some jurisdictions, winnings on certain prediction markets may be characterised as receipts from an activity treated as gaming or speculative in a legally defined sense. The consequences differ significantly from the income or capital gains approaches:

• Jurisdictions that exempt such winnings entirely (certain EU member states, and the UK in defined circumstances) make this classification favourable.
• Jurisdictions that tax them as ordinary income but restrict loss deductions can make it worse than capital treatment.
• The classification often hinges on the platform’s licensing status in the user’s jurisdiction and the degree of skill involved in trading.

The practical lesson is that the same instrument can attract different treatment depending on where the trader is resident and how local authorities characterise the underlying activity.

Section 1256 Contracts — CFTC-Regulated Exchanges Only

US traders sometimes ask about the so-called 60/40 rule for certain regulated futures and options contracts under US tax law. This treatment — under which 60% of gains are long-term and 40% short-term regardless of holding period — applies only to contracts traded on exchanges that meet specific CFTC-regulated criteria. The CFTC and US event contracts guide covers how that regulatory perimeter is drawn.

Offshore event-contract exchanges do not qualify for this treatment. Gaduin is an offshore exchange; positions on Gaduin are not CFTC-regulated contracts, and the rule is mentioned strictly as educational context. Kalshi vs GADUIN: Regulated Event Contracts Compared explains the structural differences between CFTC-regulated DCMs and offshore event-contract platforms in more detail.

Reporting Forms and Thresholds for the 2026 Filing Year

This section concerns US-regulated platforms only — venues with US information-reporting obligations. Offshore event-contract exchanges, including Gaduin, issue none of these forms; that scenario is covered in the offshore section below. Figures come from the published IRS instructions named in each row.

Form	What it reports	Threshold under current IRS instructions
Form 1099-B	Proceeds from broker transactions, including regulated futures contracts	No dollar minimum; Section 1256 results reported in aggregate — Instructions for Form 1099-B (2026)
Form 1099-MISC	“Other income” (box 3)	At least $2,000 for tax years beginning after 2025 — Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026)
Form 1099-K	Third-party network payments	More than $20,000 and more than 200 transactions — IRS, Understanding your Form 1099-K (updated June 2026)

Two of these thresholds changed recently. Public Law 119-21 (July 2025) amended section 6041(a) of the tax code by striking “$600” and inserting “$2,000”, raising the box 3 floor for tax years beginning after 2025 (inflation-adjusted from 2027), and reinstated the Form 1099-K de minimis exception in the $20,000 / 200-transaction form shown above.

On losses: under IRS Topic No. 409 (reviewed 25 February 2026), when capital losses exceed capital gains, the excess that can be claimed against other income is “the lesser of $3,000 ($1,500 if married filing separately)” per year, with the remainder carried forward.

On wash sales: Publication 550 (2025) defines a wash sale around stock or securities sold at a loss and reacquired within 30 days. The IRS has published no guidance applying wash-sale mechanics to event contracts specifically — a gap for a tax professional to address case by case.

How CFTC-regulated contracts are taxed under the 60/40 regime is a separate question — see the Section 1256 section above. And a threshold is only a reporting trigger: income below a form’s floor is still income.

The USDT Crypto Layer — What Changes With Stablecoin Settlement

GADUIN settles all event-contract positions in USDT. For many traders, this is a feature — USDT is liquid, globally accessible, and avoids the volatility of native crypto tokens. For tax purposes, however, stablecoin settlement introduces a second layer of analysis that runs in parallel with the event-contract layer.

Stablecoins May Be Treated as Property in Some Jurisdictions

In a number of major jurisdictions — including the United States, under IRS Notice 2014-21 and subsequent agency statements — cryptocurrency, including stablecoins, is treated as property rather than currency. Two consequences follow:

• Receiving USDT as settlement proceeds may itself be a taxable event: income equal to the fair market value of the USDT at that moment.
• The USDT received takes on a cost basis (generally that same fair market value), which matters if it is later sold or exchanged.

Not all jurisdictions take this approach; some treat stablecoins effectively as cash equivalents with no gain/loss consequence. USDT settlement is neither inherently taxable nor tax-free — the answer is jurisdiction-specific, ideally established before trading.

Settlement, Withdrawal, and Conversion Events

Traders on USDT-settled platforms typically move through several steps: a position settles into a USDT balance on the exchange; the trader withdraws to an external wallet; later, the USDT may be converted to local currency or another crypto asset.

Under a property-based tax regime, each of these steps is a potential analysis point. Withdrawal from an exchange account may be a disposal; conversion to fiat currency in many jurisdictions clearly is. Crypto settlement thus creates taxable-event candidates that a cash-settled instrument would not.

US digital-asset broker reporting is now in effect: per the Instructions for Form 1099-DA (2026), custodial brokers report gross proceeds from digital asset sales for transactions on or after 1 January 2025, and basis for certain transactions on or after 1 January 2026 (status checked August 2026). Offshore event-contract exchanges are not US brokers and issue no such form — the tracking burden stays with the trader.

Why Record-Keeping Matters More With Crypto Payouts

For traders receiving USDT settlement, the minimum information needed to reconstruct a tax position includes:

• The date and time of each settlement or withdrawal
• The USDT amount received at each event
• The fair market value of USDT in your local currency at the time of each transaction
• The cost basis of any USDT subsequently converted or spent

Crypto-tax software can assist with tracking on-chain transactions, but it requires accurate input data. Gaps in records create gaps in cost-basis calculations — and on audit, missing cost basis tends to be resolved in the tax authority’s favour. The USDT on-ramp guide for event-contract trading covers the mechanics of acquiring and managing USDT; for record-keeping obligations, consult a professional familiar with crypto assets in your jurisdiction.

A Jurisdiction-by-Jurisdiction Educational Snapshot

This snapshot is educational only: rules change frequently, and their application depends on individual facts and circumstances. Nothing below is legal or tax advice.

United States — Three Competing Views, No IRS Ruling

US traders face a genuine analytical challenge. Practitioner commentary — including the Thomson Reuters Tax analysis cited earlier — currently identifies three competing frameworks for classifying prediction market winnings under US federal tax law: ordinary income, capital gains, and activity-based treatment. The IRS has not published a ruling that resolves the question.

The choice of framework affects not just the rate applied but also loss-deduction rules, self-employment tax exposure, and reporting obligations. On offshore platforms — where the exchange issues no Form 1099 or equivalent — the self-reporting burden falls entirely on the taxpayer. What US-regulated venues report, and at what thresholds, is set out in the reporting-forms section above.

Gaduin does not solicit US persons; this section is educational context for readers researching the landscape.

United Kingdom — Licensing Status and HMRC’s Unsettled Position

In the UK, winnings from UKGC-licensed exchanges (the UK’s licensing authority for gaming operators) are generally exempt from income tax, arising as they do from a non-taxable speculative activity under the established approach of His Majesty’s Revenue and Customs (HMRC).

However, HMRC’s position on offshore prediction markets and event-contract exchanges — neither UKGC-licensed nor regulated by the Financial Conduct Authority (FCA) as financial instruments — is not clearly established. The applicable characterisation may depend on trading frequency, degree of skill, and how HMRC would categorise the activity; professional advice is strongly recommended.

The USDT layer adds further complexity: the HMRC Cryptoassets Manual (CRYPTO20000 series for individuals; last updated 28 November 2025) treats tokens as property, and disposal events — including conversion of USDT to sterling — may be subject to Capital Gains Tax unless a specific exemption applies.

European Union — Fragmented Member-State Approaches

There is no single EU-wide tax regime for prediction market or event-contract winnings. Member states control their own income and capital gains tax systems, and approaches vary significantly:

• Some member states have established regimes for speculative-activity receipts that may or may not capture offshore prediction market activity, depending on platform licensing.
• Others treat financial instruments under capital gains rules, which may extend to event-contract positions depending on characterisation.
• The crypto layer is governed by each member state’s own digital-asset tax rules, evolving in the wake of the EU Markets in Crypto-Assets Regulation (MiCA).

Germany illustrates how concrete national guidance can be: the Federal Ministry of Finance letter of 6 March 2025, Einzelfragen zur ertragsteuerrechtlichen Behandlung bestimmter Kryptowerte, replaced the ministry’s 10 May 2022 guidance as the operative reference for how individuals’ crypto-asset transactions are taxed. EU-resident traders should seek advice covering both the financial-instruments and crypto-assets regimes of their specific country.

Other Jurisdictions — General Principles

Elsewhere, prediction market and event-contract taxation follows no single template, but the crypto layer is increasingly well documented by the authorities themselves:

• Australia — under the Australian Taxation Office’s current guidance (Crypto asset investments, ato.gov.au, current as of 9 August 2026), crypto held as an investment is a capital gains tax (CGT) asset, and disposing of it is a CGT event.
• Canada — the Canada Revenue Agency’s guidance (Information for crypto-asset users and tax professionals, canada.ca, current as of 9 August 2026) explains when a disposition produces a capital gain versus business income, and where each is reported.
• Elsewhere, the key variables remain property-vs-currency treatment of crypto, possible speculative-activity exemptions, and whether systematic trading becomes a trade or business.

In many cases, the USDT disposal question is the more tractable starting point — crypto-tax guidance exists in most developed jurisdictions even where prediction-market-specific guidance does not.

Event Contracts on Offshore Platforms — What Traders Should Know

Understanding what offshore status means from a tax-reporting perspective is part of responsible trading — whether you trade transport outcomes on Gaduin or political outcomes elsewhere, a contrast drawn in GADUIN vs Polymarket: transport vs political event contracts.

Offshore Exchanges and User Reporting Responsibility

Offshore exchanges typically do not report user activity to the tax authorities of the user’s home country, and issue no forms equivalent to a US Form 1099 or its counterparts elsewhere.

The absence of third-party reporting does not transfer the obligation from taxpayer to exchange. In most self-assessment systems, the taxpayer must report all taxable income and gains — regardless of whether the exchange has filed anything.

Note also that information-exchange agreements, including the OECD Common Reporting Standard (CRS), increasingly bring offshore financial activity into domestic tax authorities’ view. Assuming that offshore income is invisible to local authorities is increasingly risky.

No Tax Form Doesn’t Mean No Tax Obligation

The corollary is worth stating directly: the absence of a Form 1099, a T5008, or any other tax document from the exchange is not a defence if you are audited and have not reported income from event-contract activity. The forms and dollar floors that US-regulated venues apply are described in the reporting-forms section above — none of them limit what a taxpayer owes.

Tax authorities in most developed countries assess penalties and interest on unreported offshore income, and USDT transactions on public blockchains are increasingly visible to blockchain-analytics tools that authorities can reach through legal process.

The practical implication: keep records and report as if the exchange were issuing forms — the obligation exists independently of whether it does.

FBAR and FATCA — A Note for US-Person Readers (Educational Only)

For US persons (citizens, residents, and certain other status holders), offshore financial accounts and assets may trigger reporting obligations beyond the income tax return. Under the IRS guidance on the Report of Foreign Bank and Financial Accounts (FBAR) (page updated 30 July 2026), a US person generally files FinCEN Form 114 when the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year; disclosure under the Foreign Account Tax Compliance Act (FATCA) may also apply.

This is educational context only — Gaduin does not solicit US persons. A US person with offshore accounts or crypto assets should consult a US tax professional with international experience before drawing any conclusions from this article.

Practical Steps — Not Tax Advice

The landscape is unsettled and jurisdiction-specific, but some practices are sensible regardless of which framework ultimately applies — and they hold for the 2026 filing year as much as any other.

Document Every Position, Settlement, and Conversion

Maintain a contemporaneous record of:

• Every event-contract position opened: date, contract type, outcome traded, USDT amount committed
• Every settlement received: date, USDT amount, fair market value in your local currency at the time
• Every withdrawal from the exchange: date, USDT amount, receiving wallet address
• Every conversion of USDT: date, amount, proceeds in local currency or other asset

How GADUIN verifies flight delay outcomes explains the oracle and settlement mechanics; your records should capture the moment settlement is credited. A structured trading journal with P&L tracking doubles as the backbone of a tax file, supplemented with on-chain transaction histories where relevant.

Choose a Defensible Classification With a Qualified Tax Professional

Given the genuine uncertainty about which framework applies, the most important decision is choosing a tax professional who:

• Understands both financial instruments and crypto assets in your jurisdiction
• Can identify the framework most consistent with how local authorities and courts have treated analogous instruments
• Can document the basis for the chosen classification defensibly on audit

The cost of advice is generally modest relative to the exposure from mis-classifying material income.

Educational Content ≠ Professional Advice

This article is part of an educational series on how event contracts work, settle, and fit into the broader financial landscape. It draws on published tax-authority documents and, where marked as such, practitioner commentary; it does not assess your personal situation and creates no professional relationship between you and Gaduin. For context on how event contracts work, see How Flight Delay Event Contracts Work on GADUIN.

Frequently Asked Questions

The exchange never sent me a tax form — do I still owe tax, and do US reporting thresholds shield me?

In most self-assessment systems, yes, you may still owe tax: the duty to report does not depend on receiving a form. Offshore exchanges issue no Form 1099-style documents, yet authorities assess penalties and interest on unreported offshore income, and frameworks such as the CRS make that activity increasingly visible. Nor do US thresholds such as the $20,000 Form 1099-K floor offer protection — they define when US-regulated payers must file information returns, not how much income can go unreported. An offshore event-contract exchange files none of these forms, so no threshold shields the activity; the forms merely determine what a tax authority hears about automatically.

Is receiving USDT settlement itself a taxable event?

It can be. In jurisdictions that treat crypto as property — the best-known example being the US position since 2014 — receiving USDT may be a taxable receipt at fair market value, which also sets the cost basis for any later conversion. Others treat stablecoins closer to cash. Verify your jurisdiction’s answer before trading, not at filing time.

Does the 60/40 Section 1256 treatment apply to positions on Gaduin?

No. That treatment is limited to contracts on exchanges meeting specific CFTC-regulated criteria. Gaduin operates offshore and is not CFTC-regulated, so its positions are not Section 1256 contracts. The regime is discussed in this guide only as educational context for readers comparing regulated and offshore venues.

Can I rely on this guide when I file?

No — and that is by design. This article is educational, summarises published sources as of 2026, and cannot account for your residency, trading pattern, or local rules; the Disclaimer below applies to every section. Use it to prepare informed questions, then let a qualified tax professional determine the treatment that fits your facts.

Disclaimer

This article is for educational purposes only and does not constitute tax, legal, or financial advice. The tax treatment of prediction market or event-contract winnings varies by jurisdiction, platform type, and individual circumstances. Tax laws and regulatory guidance change; the information in this article reflects publicly available sources as of 2026 and may not be current by the time you read it. Gaduin is an offshore event-contracts exchange with USDT settlement; it is not a tax advisor, accountant, or legal counsel. Gaduin does not solicit US persons. Availability of Gaduin’s services depends on your jurisdiction. Always consult a qualified tax or legal professional for advice tailored to your specific situation before making any reporting or planning decisions.