How much tax might I owe on prediction market winnings?
In the US, prediction market winnings are usually taxed as ordinary income on top of your other income. Losses can offset winnings only up to the amount won, and only if you itemize. When the standard deduction is larger, documented losses may not lower the bill at all.
The estimator works out your tax with and without the market activity, so the result is the extra tax the winnings create: the amount to set aside, minus anything already withheld.
- Best for
- US traders planning for filing season
- Primary output
- Estimated added tax and balance due
- Use before
- Large withdrawals or year-end position changes
Key points
- Shows the extra federal and state tax the winnings add
- Checks whether itemizing losses beats the standard deduction
- Subtracts withholding to show what is still due
Method and assumptions
How the tax estimator works
The calculator works out your federal tax twice: once on your other income alone, and once with prediction market winnings added. The difference is the federal tax the winnings create. State tax is your marginal state rate times the extra taxable income.
Losses are capped at winnings and count only as an itemized deduction. In each case the model uses whichever is larger: the standard deduction, or your losses plus other itemized deductions.
- Other ordinary income sets the bracket the winnings land in
- Gross winnings are added in full before any loss deduction
- Documented losses count only up to winnings, and only when itemizing wins
- State tax uses a single marginal rate, a planning shortcut
Not covered: Entity structures, AMT, local taxes, non-US rules and platform tax forms. Use the estimate to plan cash, not to file.
What inputs to use for a realistic estimate
Enter gross winnings, not your net result for the year. $12,000 won and $3,500 lost is not taxed like $8,500 of profit: the winnings are income, and the losses are a separate deduction that may not apply.
Enter only losses you can document with statements, exports or transaction history. If you are unsure about a number, leave it out. The higher estimate is the safer amount to set aside.
- Enter your taxable income from everything except prediction markets.
- Enter gross winnings for the period.
- Enter documented losses and other itemized deductions.
- Add withholding or estimated payments already made.
Worked tax example
A single filer in 2026 has $95,000 of other income, $12,000 of winnings, $3,500 of documented losses, $6,000 of other itemized deductions and a 5% state rate. Itemizing would total $9,500, less than the $15,900 standard deduction, so the losses do not reduce the tax.
All $12,000 is added to taxable income in the 22% federal bracket: $2,640 of federal tax and $600 of state tax, $3,240 in total. With nothing withheld, all of it is still due. Raise losses and other deductions to $9,000 each and itemizing wins, which brings the extra tax down to $2,673.
- When the standard deduction wins, losses have no tax value in the model
- Low withholding leaves a balance due even in a profitable year
- With a 0% state rate, the federal figure is the amount to reserve
Tax planning mistakes
The usual mistake is spending winnings before setting the tax aside. In the example above, $3,240 of the $12,000 won belongs to the IRS and the state.
The next is checking too late. Rerun the estimate after a large win, at quarter end and before a year-end withdrawal, while withholding or estimated payments can still change the result.
- Starting from net profit instead of gross winnings
- Counting losses you cannot document
- Ignoring withholding and estimated payment deadlines
- Applying US rules to a non-US tax situation
Sources and assumptions
Frequently asked questions
Does this tax estimator replace a CPA or tax attorney?
No. It estimates the extra tax from prediction market activity for planning. Filing treatment depends on your jurisdiction, platform reporting, records and the rest of your return.
Why does the estimator ask for gross winnings instead of only net profit?
Because winnings and losses are treated separately. Winnings are income; losses are an itemized deduction capped at winnings. Planning from net profit can understate the tax.
Why might my losses not reduce the estimate very much?
If the standard deduction is larger than your itemized total, losses do not change taxable income in the model. The calculation details show which deduction applies before and after the winnings.
Can I use this for Kalshi or Polymarket?
Yes, as a planning model. Confirm your reporting documents and tax treatment with a qualified professional.