Polymarket vs Kalshi Taxes: Form 8949 or Section 1256?
Two prediction markets, two very different tax treatments. Here’s how the IRS views Polymarket trades compared to Kalshi contracts—and what that means for your forms, rates, and audit trail.
Quick Overview
- Polymarket: Typically reported as short-term capital gains on Form 8949 & Schedule D.
- Kalshi: Designated contract market offering CFTC-regulated event contracts. Many CPAs use Section 1256 60/40 treatment (60% long-term, 40% short-term) for qualified contracts.1
- Recordkeeping: Both platforms require your own documentation—no automatic 1099-B reporting.
1 See KPMG’s Kalshi tax summary (2023) highlighting Section 1256 eligibility for certain event contracts.
Why Polymarket Stays on Form 8949
Polymarket trades settle through smart contracts on Polygon. There is no CFTC designation yet, and the platform does not issue 1099-B forms. As a result, U.S. traders generally treat each closed position like a short-term capital asset. PolyTax automatically prepares the Form 8949 detail and rolls your totals to Schedule D.
Short-term gains are taxed at your ordinary income rates (10%-37%). Long-term gains (positions held > 12 months) receive favorable 0%, 15%, or 20% brackets, though most prediction markets resolve before a year elapses.
When Kalshi Uses Section 1256
Kalshi operates as a CFTC-regulated Designated Contract Market (DCM). The exchange classifies many contracts as Section 1256 contracts, similar to regulated futures. That means the IRS automatically splits gains into 60% long-term and 40% short-term, regardless of holding period. The blended rate can materially reduce tax for high-income traders.
Form Comparison
| Topic | Polymarket | Kalshi |
|---|---|---|
| Primary IRS form | Form 8949 + Schedule D | Form 6781 (Section 1256) + Schedule D |
| Default holding period | Actual holding period (mostly short-term) | Split 60% long-term / 40% short-term automatically |
| Common tax rates | Ordinary income for short-term; 0/15/20% for long-term | Blended rate — 60% at long-term, 40% at ordinary |
| Information reporting | Self-reported (no 1099-B) | Kalshi may provide account statements; still file Form 6781 |
What if a Contract Doesn’t Qualify for Section 1256?
Not every Kalshi market is automatically a Section 1256 contract. If the contract resolves on an outcome that resembles a simple binary bet without futures characteristics, some practitioners still use Form 8949. Confirm the treatment with your tax professional or Kalshi documentation before filing.
Documentation Checklist
- Polymarket: Wallet addresses, transaction hashes, PolyTax Form 8949 PDF + CSV.
- Kalshi: Annual statement, trade confirmations, Form 6781 worksheets, screenshots of account balances.
- Both: Notes explaining strategy (hedging, arbitrage) and any conversions to fiat. This context helps if you receive a CP2000 notice.
Filing Strategy
Many traders use both platforms. In that case, you’ll likely have a hybrid return:
- Report Polymarket trades on Form 8949 (short-term most common).
- Report Kalshi contracts qualifying for Section 1256 on Form 6781.
- Combine the results on Schedule D before transferring totals to Form 1040.
Keep contracts segregated. Do not mix Section 1256 totals with Form 8949 subtotals—your tax software should create distinct worksheets for each.
Next Steps
- Review the Polymarket USA guide to confirm your reporting workflow.
- Follow our TurboTax import tutorial if you self-file.
- Ask your CPA whether any Kalshi contracts you trade fall under Section 1256 and save supporting statements.