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 is: it depends — on your jurisdiction, your platform, your residency status, and even the currency in which your positions settle. If you trade on a platform that settles in USDT, there may be an additional layer of taxable events under the rules that govern cryptocurrency in your country.

This guide is a purely educational overview. It maps the main frameworks tax authorities have applied or discussed in relation to prediction market and event-contract winnings, explains the USDT layer, and highlights 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, for example, has published no ruling that specifically addresses platforms such as Polymarket, Kalshi, or offshore event-contract exchanges. Tax professionals must instead reason by analogy — mapping these instruments onto existing categories such as ordinary income, capital gains, or, in some jurisdictions, gaming-activity receipts.

A 2023 analysis by Thomson Reuters Tax and a practitioner note from the National Association of Tax Professionals (NATP) both flagged the absence of IRS guidance as a source of significant uncertainty — particularly as prediction market contracts began appearing on client tax returns in volume. The silence from regulators is not an invitation to ignore the issue; it signals that classification is contested and professional judgment is unavoidable.

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 CFTC oversight sits in a different legal category from an offshore event-contract exchange. Some tax analysts argue that CFTC-regulated contracts may qualify for specific treatment under US law precisely because of that designation; offshore platforms — which include 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 compounds the picture: 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. The interaction between event-contract economics and crypto-property rules is one of the least-covered corners of the tax literature.

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 the following constitutes advice about which framework applies to your situation; that determination depends on your jurisdiction, your personal circumstances, and the nature of the platform you use.

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. Under this view, each closed position produces income equal to the proceeds minus the cost of the position.

Ordinary income treatment is common where no statutory framework exists for alternative treatment and where 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: the gain or loss is calculated on settlement or early exit, and the applicable rate depends on the holding period and the tax regime of the 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 the rates attached to each — 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:

In jurisdictions that exempt such winnings from tax entirely (certain EU member states, and the UK in defined circumstances), this classification could be favourable.
In jurisdictions that tax such winnings as ordinary income but restrict loss deductions, the outcome may be less favourable than capital treatment.
The classification often hinges on whether the platform is licensed as a gaming or financial-services operator in the user’s jurisdiction, and on the degree of skill involved in trading.

For event-contract traders, the practical lesson is that the same instrument can attract different treatment depending on which jurisdiction the trader is resident in 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.

Offshore event-contract exchanges do not qualify for this treatment. Gaduin is an offshore exchange; positions on Gaduin are not CFTC-regulated contracts. This is mentioned here strictly for educational context, because the question arises frequently among US-based researchers of prediction markets. Kalshi vs GADUIN: Regulated Event Contracts Compared explains the structural differences between CFTC-regulated DCMs and offshore event-contract platforms in more detail.

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. This characterisation has significant consequences:

Receiving USDT as settlement proceeds may itself constitute a taxable event: the recipient could recognise income equal to the fair market value of the USDT received at that moment.
The USDT received also takes on a cost basis (generally, the fair market value at the time of receipt), which becomes relevant if the USDT is later sold or exchanged.

Not all jurisdictions take this approach. Some treat stablecoins effectively as cash equivalents with no gain/loss consequence. The point is not that USDT settlement is inherently taxable or tax-free — it is that the question must be answered jurisdiction by jurisdiction, ideally before you begin 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; the trader may later convert USDT to a local currency or to 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. The cumulative tax footprint can therefore exceed what a trader used to cash-settled instruments would expect.

This is not a statement that every USDT transaction generates a tax liability — it is an educational note that the structure of crypto settlement creates multiple taxable-event candidates that a purely cash-settled instrument would not.

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 in an audit context, missing cost basis tends to be resolved in the tax authority’s favour. The USDT on-ramp guide for event-contract trading on this blog covers the mechanics of acquiring and managing USDT; for tax-specific record-keeping obligations, consult a professional familiar with crypto assets in your jurisdiction.

A Jurisdiction-by-Jurisdiction Educational Snapshot

The following is an educational overview only. Tax rules change frequently, and the application of general rules to specific transactions depends on facts and circumstances that vary by individual. Nothing below constitutes legal or tax advice.

United States — Three Competing Views, No IRS Ruling

US traders face a genuine analytical challenge. As noted by both Thomson Reuters Tax and Green Trader Tax, practitioners currently identify 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. For traders using offshore platforms — where the exchange does not issue a Form 1099 or equivalent — the self-reporting burden falls entirely on the taxpayer.

Gaduin does not solicit US persons. This section is included purely as educational context for readers researching the regulatory and tax 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 for the individual trader, on the basis that they arise from a non-taxable speculative activity under HMRC’s established approach.

However, HMRC’s position on offshore prediction markets and event-contract exchanges — which are neither UKGC-licensed nor FCA-regulated financial instruments — is not clearly established. For UK-resident traders using offshore platforms, the applicable characterisation may depend on trading frequency, the degree of skill involved, and how HMRC would categorise the activity. Professional advice is strongly recommended.

The USDT layer adds further complexity: HMRC’s crypto guidance 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 implementation of digital-asset taxation framework, which is evolving rapidly in the wake of MiCA and related regulatory developments.

Traders resident in EU member states should obtain advice from a professional familiar with both financial-instruments and crypto-assets regimes in their specific country.

Other Jurisdictions — General Principles

Across other major jurisdictions — including Singapore, Australia, Canada, and various offshore financial centres — prediction market and event-contract taxation follows no single template. Key variables include:

Whether the jurisdiction treats cryptocurrency as property or as currency
Whether there is an exemption for speculative or games-of-chance winnings that might apply to offshore platform activity
Whether the frequency and systematic nature of trading could cause the activity to be classified as a trade or business, attracting income tax rather than capital gains treatment

In many cases, the USDT disposal question may be the more tractable analytical starting point — crypto-tax guidance exists in most developed jurisdictions even where prediction-market-specific guidance does not. A tax professional with crypto expertise is the most reliable first step.

Event Contracts on Offshore Platforms — What Traders Should Know

Gaduin is an offshore event-contracts exchange. Understanding what that means from a tax-reporting perspective is part of responsible trading.

Offshore Exchanges and User Reporting Responsibility

Offshore exchanges typically do not report user activity to the tax authorities of the user’s home country. They do not issue tax forms equivalent to a US Form 1099, a UK equivalent, or their counterparts in other jurisdictions.

The absence of third-party reporting does not transfer the reporting obligation from the taxpayer to the exchange. In most jurisdictions with comprehensive self-assessment tax systems, the taxpayer is required to report all taxable income and gains — regardless of whether the exchange has filed a corresponding report.

Traders should also note that information-exchange agreements, including the OECD Common Reporting Standard (CRS), increasingly bring offshore financial activity into domestic tax authorities’ view. The assumption that income from offshore platforms is invisible to local tax 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.

Tax authorities in most developed countries assess penalties and interest on unreported offshore income. The growing sophistication of on-chain analytics also means that USDT transactions on public blockchains are potentially visible to analysts and, in turn, to tax authorities that access blockchain-analytics data through legal process.

The practical implication is that traders should keep records and report as if the exchange were issuing forms — because the obligation to report 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. US persons with offshore financial accounts above certain aggregate thresholds may be required to file FinCEN Form 114 (FBAR) or satisfy FATCA disclosure requirements.

This paragraph is purely educational context for readers researching the landscape. Gaduin does not solicit US persons. If you are a US person with offshore financial accounts or crypto assets held offshore, consult a US tax professional with international experience before drawing any conclusions from this article.

Practical Steps — Not Tax Advice

The regulatory and tax landscape for event-contract and prediction market trading is unsettled and jurisdiction-specific. That said, there are sensible practices that most professional advisors would recommend regardless of which framework ultimately applies.

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 to your balance. Crypto-native traders can supplement exchange records with on-chain transaction histories using a blockchain explorer or dedicated crypto-tax software.

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 (options, futures, structured products) and crypto assets in your jurisdiction
Can identify the framework most consistent with how local tax authorities and courts have treated analogous instruments
Can document the basis for the chosen classification in a way that is defensible on audit

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

Educational Content ≠ Professional Advice

This article is part of an educational series on how event contracts work, how they settle, and how they fit into the broader financial landscape. It draws on publicly available research from tax practitioners and professional associations. It does not assess your personal situation and does not create any professional relationship between you and Gaduin.

For context on how event contracts work and how USDT settlement is structured, see How Flight Delay Event Contracts Work on GADUIN and How GADUIN Settles Flight Delay Contracts in USDT.

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.