Are prediction market winnings taxable in California?

Yes. All prediction market profits are taxable income at both the federal level and California state level. California has no de minimis exception. Even small profits are reportable, regardless of whether the platform issues a 1099.

Does Kalshi send a 1099?

Kalshi historically issues 1099-B forms to users who hit reporting thresholds. The form arrives in January or February for the prior tax year and is also available in your account's tax documents section.

Does Polymarket send a 1099?

Polymarket does not currently issue 1099 forms to US users. You are responsible for self-reporting all profits. Use the platform's CSV export to track activity.

What is Section 1256 treatment?

Section 1256 of the Internal Revenue Code provides 60/40 tax treatment for qualifying regulated futures contracts: 60% long-term capital gains, 40% short-term, regardless of holding period. Some prediction market contracts may qualify; consult a CPA.

Are USDC conversions on Polymarket taxable?

Technically, yes. Each USDC-to-USD conversion is a separate taxable event under crypto tax rules. The amounts are usually negligible since USDC is pegged to USD, but they should be tracked.

Can I deduct prediction market losses?

Yes, with limits. Capital losses can offset capital gains plus up to $3,000 of ordinary income per year. Excess losses carry forward. 1256 contract losses have additional carryback options.

Do you pay California state tax on Kalshi winnings?

Yes. California treats prediction-market profits as ordinary income at your state marginal rate (1%-13.3%) in addition to federal tax. Kalshi's 1099-MISC reports the federal figure; you carry the same net gain onto Schedule CA on your California return.

Do you pay taxes on Polymarket USDC winnings in California?

Yes, and often twice. The trading profit is ordinary income federally and in California. If you then hold or convert the USDC and its price moves, that leg is a separate capital-gains event. Keep on-chain trade logs and any conversion records.

What tax form does Kalshi send California traders?

Kalshi issues IRS Form 1099-MISC to any account whose net calendar-year winnings exceed $600. It arrives by late January inside Kalshi under Settings → Documents and is also mailed. California residents report the same figure on their state return via Schedule CA.

No. This article is general information only. Consult a licensed CPA, ideally one familiar with derivatives or 1256 contracts, before filing.

How do I report Polymarket gains to the FTB if no 1099 is issued?

California residents must self-report all capital gains to the Franchise Tax Board and the IRS regardless of whether a platform issues a tax form. Because Polymarket does not issue a 1099, you must maintain your own transaction logs, calculating the difference between your cost basis and the settlement value in USD.

Are prediction market losses deductible against other California income?

California tax law generally allows you to use capital losses from prediction markets to offset capital gains. If your total annual losses exceed your gains, you can typically deduct up to three thousand dollars against ordinary income on your tax return, with the remainder carrying forward to future tax years.

Are prediction markets legal in California?

Yes. CFTC-regulated event-contract platforms operate under federal commodities law, which preempts state gambling statutes. That makes Kalshi, Polymarket, Sleeper, Chalkboard, Novig, Rebet, and Crypto.com legal for California residents to use today. Even though traditional online sportsbooks remain unavailable in the state.

Who regulates the platforms I am trading on?

The Commodity Futures Trading Commission (CFTC): the same federal agency that regulates futures, options, and swaps. Platforms operate as Designated Contract Markets (DCMs) and must follow rules on disclosures, market integrity, customer protection, and segregation of customer funds.

Do I need to pay California state tax on my winnings?

Yes. Profits are taxable as either short-term capital gains or ordinary income at both the federal and California state level. There is no de minimis exemption. Some Kalshi contracts may qualify for Section 1256 60/40 treatment. Consult a CPA. This is not tax advice.

Is my money protected if a platform fails?

CFTC-regulated platforms are required to keep customer funds segregated from operational capital. That gives meaningful protection in the event of operator bankruptcy, but it is not the same as FDIC insurance. Only fund accounts with money you are prepared to lose.

What disclosures should I read before trading?

Read each platform's contract resolution rules carefully. They vary across venues for the same event. Also review our editorial Disclosure for how we earn revenue from affiliate partnerships and how that affects (and does not affect) our coverage.

What are the age and residency requirements?

You must be 21 or older and a US resident with a valid government ID. KYC verification is mandatory and typically completes in 5-60 minutes.

Guide·8 min read·LOS ANGELES

Prediction Market Taxes in California: 2026 Guide

By Catie Di StefanoPublished April 21, 2026Updated September 6, 2026

Yes, your Kalshi and Polymarket profits are taxable, federally and in California. Here's how 1099s, Section 1256, and USDC conversions actually work for CA residents.

FeaturedKalshi Polymarket OG (by Crypto.com)

Some links on this page are affiliate links. We may earn a commission if you sign up, at no cost to you. How we make money.

Guide

Keep the loop going

This month's biggest prediction market movers

A live board of the biggest 30-day probability shifts across every market we track.

Open

What changed, and when

Dated log of offer, ranking and state-availability changes so you know how current a page is.

Open

Sources & further reading

Every figure and legal claim on this page traces back to a primary source. These are the ones we checked, open them and verify us.

CFTC: Commodity Futures Trading Commission
The federal regulator that authorizes and supervises every event-contract exchange we cover.
CFTC designated contract markets registry
Official list of registered exchanges, where we verify a platform's DCM status.
Commodity Exchange Act (7 U.S.C. § 1 et seq.)
The federal statute that preempts state gambling law for event contracts.
National Council on Problem Gambling
Free, confidential help and self-assessment tools (1-800-522-4700).

Frequently asked questions

Are prediction market winnings taxable in California?: Yes. All prediction market profits are taxable income at both the federal level and California state level. California has no de minimis exception. Even small profits are reportable, regardless of whether the platform issues a 1099.
Does Kalshi send a 1099?: Kalshi historically issues 1099-B forms to users who hit reporting thresholds. The form arrives in January or February for the prior tax year and is also available in your account's tax documents section.
Does Polymarket send a 1099?: Polymarket does not currently issue 1099 forms to US users. You are responsible for self-reporting all profits. Use the platform's CSV export to track activity.
What is Section 1256 treatment?: Section 1256 of the Internal Revenue Code provides 60/40 tax treatment for qualifying regulated futures contracts: 60% long-term capital gains, 40% short-term, regardless of holding period. Some prediction market contracts may qualify; consult a CPA.
Are USDC conversions on Polymarket taxable?: Technically, yes. Each USDC-to-USD conversion is a separate taxable event under crypto tax rules. The amounts are usually negligible since USDC is pegged to USD, but they should be tracked.
Can I deduct prediction market losses?: Yes, with limits. Capital losses can offset capital gains plus up to $3,000 of ordinary income per year. Excess losses carry forward. 1256 contract losses have additional carryback options.
Do you pay California state tax on Kalshi winnings?: Yes. California treats prediction-market profits as ordinary income at your state marginal rate (1%-13.3%) in addition to federal tax. Kalshi's 1099-MISC reports the federal figure; you carry the same net gain onto Schedule CA on your California return.
Do you pay taxes on Polymarket USDC winnings in California?: Yes, and often twice. The trading profit is ordinary income federally and in California. If you then hold or convert the USDC and its price moves, that leg is a separate capital-gains event. Keep on-chain trade logs and any conversion records.
What tax form does Kalshi send California traders?: Kalshi issues IRS Form 1099-MISC to any account whose net calendar-year winnings exceed $600. It arrives by late January inside Kalshi under Settings → Documents and is also mailed. California residents report the same figure on their state return via Schedule CA.
Is this tax advice?: No. This article is general information only. Consult a licensed CPA, ideally one familiar with derivatives or 1256 contracts, before filing.
How do I report Polymarket gains to the FTB if no 1099 is issued?: California residents must self-report all capital gains to the Franchise Tax Board and the IRS regardless of whether a platform issues a tax form. Because Polymarket does not issue a 1099, you must maintain your own transaction logs, calculating the difference between your cost basis and the settlement value in USD.
Are prediction market losses deductible against other California income?: California tax law generally allows you to use capital losses from prediction markets to offset capital gains. If your total annual losses exceed your gains, you can typically deduct up to three thousand dollars against ordinary income on your tax return, with the remainder carrying forward to future tax years.

Legal & Compliance

Legality, regulation, and your protections

For full guardrails, see our Responsible Trading guide and our editorial Disclosure. This page is informational, not legal or tax advice.

Responsible Trading

Trading safely: the questions that matter

Is trading prediction markets the same as gambling?: No. Prediction markets are CFTC-regulated event contracts, financial derivatives, not casino games. That said, you can still lose every dollar you put in. Treat capital at risk as money you are prepared to lose.
How much should I trade with?: Only with money you can afford to lose without affecting rent, bills, or savings goals. A common rule of thumb: cap total prediction market exposure at 1-5% of your discretionary income.
What are the warning signs of problem trading?: Trading to recover losses, hiding activity from family, borrowing to fund deposits, missing work or sleep, or feeling unable to stop. If any of these apply, step away and call 1-800-GAMBLER.
Where can I get help in California?: Call the California Problem Gambling Helpline at 1-800-GAMBLER (free, confidential, 24/7) or visit ncpgambling.org. Most platforms also offer self-exclusion and deposit limit tools in account settings.
Can I set deposit or loss limits?: Yes. Kalshi, Polymarket, Sleeper, and Chalkboard all offer self-imposed deposit limits, loss limits, and cooling-off periods. Set them when you open the account, not after a bad week.

If you or someone you know needs help, call 1-800-GAMBLER or visit ncpgambling.org.

Keep reading

Compare

Kalshi vs Polymarket

Side-by-side: fees, markets, payouts, who wins each category.

Read

California hub

What's live in California this week

Updated weekly: legal markets, top picks, and what to skip.

Read

Next steps

Top platforms Californians are using:

Kalshi

The regulatory leader.

Certain limitations apply. The offer is available to new users only, subject to the terms and conditions at kalshi.com/tc/500. 21+ only. Restrictions and eligibility requirements apply. Event contract trading involves significant risk and is not appropriate for everyone. Please carefully consider if it is appropriate for you in light of your personal financial circumstances. Kalshi products are not available in all jurisdictions. See kalshi.com/regulatory for more information.

Polymarket

The world's largest prediction market, now live on iPhone in the US.

21+ Only. Restrictions and eligibility requirements apply. Not available in all jurisdictions. Trading is risky. 100% loss can occur. See polymarket.com/tos for more information. The Polymarket US App serves as an independent software provider and affiliate of Polymarket US and Polymarket Clearing, the CFTC-regulated exchange and clearing organization.

OG (by Crypto.com)

CFTC-regulated event contracts. Get up to $100 in bonuses.