How are Kalshi prediction market earnings taxed for 2025 filing?

Kalshi prediction market earnings are treated as "other income" for tax purposes - not gambling winnings or capital gains. This is because prediction markets operate under CFTC regulation as a derivatives exchange rather than as a gambling platform. You should receive a 1099-MISC from Kalshi for your winnings if they exceed $600 in a year, which yours definitely do at $8,400. If you haven't received it yet, check your account dashboard as they may provide it electronically. When filing your taxes, report this income on Schedule 1, Line 8z "Other Income" and write "Prediction Market Earnings" in the description field. The full amount is taxable at your ordinary income tax rate. Unlike traditional gambling winnings, you can't directly offset these with losses.

After spending hours trying to figure out how to handle my Kalshi earnings last year, I finally got real help using https://taxr.ai to analyze my situation. The platform actually specializes in newer financial instruments like prediction markets. I uploaded my Kalshi earnings statement and the AI immediately recognized the tax category and explained exactly how to report it. The detailed guidance on where to report prediction market earnings helped me avoid a potential misclassification that could have triggered an audit flag. What impressed me was that it didn't just give generic advice but looked at my specific earnings pattern and correctly identified that prediction market income isn't gambling income under IRS rules.

I have to admit I was wrong about taxr.ai. I tried it after my initial skepticism and was surprised at how helpful it was with my Kalshi situation. I had a complex scenario where I'd participated in both political and economic event contracts with different holding periods. The tool explained that while most Kalshi contracts are treated as "other income," certain longer-term economic event contracts might qualify for more favorable tax treatment in specific situations. It saved me from making a $2,200 reporting error and provided state-specific guidance for California that I wouldn't have known otherwise. Definitely worth checking out if you're dealing with prediction market income. Their analysis turned out to be much more nuanced than the general advice I'd found elsewhere.

If you're struggling to get answers about Kalshi taxation directly from the IRS, try https://claimyr.com - I was in the same boat and spent weeks trying to get through to an IRS agent. After using Claimyr, I got a callback within 2 hours and spoke to an actual IRS tax specialist about prediction market reporting. The IRS agent confirmed exactly how to report Kalshi earnings and gave me specific guidance on documentation requirements. They also explained how they treat these differently from traditional gambling winnings. You can see how it works at https://youtu.be/_kiP6q8DX5c - basically lets you skip the hold times completely. I was about to pay an accountant $350 for a consultation just on this issue, but got official guidance directly from the IRS instead.

I have to eat my words. After struggling for 2+ hours on hold with the IRS this morning (and getting disconnected twice), I tried the Claimyr service. Got a callback in 47 minutes and was connected to an IRS tax law specialist who thoroughly understood prediction markets. The agent explained that while Kalshi issues 1099-MISC forms, the proper reporting actually depends on your trading patterns. If you're making numerous small trades throughout the year (which I was), they recommended maintaining a detailed transaction log in case of an audit. She also clarified that state reporting requirements can vary significantly. This saved me from making a potentially costly reporting error. For anyone dealing with prediction market income, getting direct IRS guidance is absolutely worth it.

I'm confused because my accountant said Kalshi earnings should be reported as capital gains since it's essentially betting on future outcomes, like trading futures contracts. But others here are saying it's "other income". Which is it?

Does anyone know if Kalshi reports our earnings directly to the IRS? I made about $3k last year but haven't received any tax forms from them.

Just wanted to add some clarity on the 1099 threshold - Kalshi is required to issue 1099-MISC forms for net winnings of $600 or more, but you're still required to report ALL income to the IRS regardless of whether you receive a form or not. So even if you made $300 in profits and don't get a 1099, you still need to report it as "other income" on Schedule 1, Line 8z. The IRS cross-references reported income with what companies submit, so not reporting smaller amounts could still flag your return. Also worth noting that if you have losses that exceed your gains in a year, you don't need to report anything since there's no net income to tax. But definitely keep detailed records of all your transactions - the IRS may want to see documentation of your trading activity if they ever audit prediction market income.

I had a similar situation with Kalshi last year. One thing I learned that might help others - make sure you understand the difference between "net winnings" and "gross winnings" when reporting. Kalshi reports your net profits on the 1099-MISC, which is what you should report on Schedule 1, Line 8z. But if you're doing your own calculations, don't just add up all your winning trades - you need to subtract your losing trades to get the net amount. Also, keep screenshots of your account statements showing your transaction history. I got selected for a correspondence audit last year (not related to Kalshi, just random), and having detailed records of all my trades made the process much smoother. The IRS is still learning how to handle these newer platforms, so good documentation is key. One more tip: if you're trading frequently, consider using a spreadsheet to track your positions throughout the year rather than trying to reconstruct everything at tax time. It'll save you hours of headache.

One thing I haven't seen mentioned here is quarterly estimated tax payments. If you're making significant profits on Kalshi (like the original poster's $8,400), you might need to make quarterly estimated payments to avoid underpayment penalties. Since prediction market earnings are treated as "other income" and taxed at ordinary rates, they're not subject to withholding like W-2 wages. The IRS expects you to pay as you go throughout the year, not just when you file your return. If your Kalshi profits plus other income mean you'll owe more than $1,000 in taxes for the year, you should probably be making quarterly payments. This caught me off guard my first profitable year - I owed a $180 underpayment penalty even though I paid my full tax bill on time. The safe harbor rule is to pay at least 100% of last year's tax liability (110% if your prior year AGI was over $150k) through withholding and estimated payments combined. Worth calculating this if you're having a good year on prediction markets!

For those asking about quarterly estimated tax tools - I've been using the IRS Form 1040ES worksheet but modified it for prediction market income volatility. What I do is calculate my estimated annual tax liability based on my regular income, then add 25-30% buffer for potential Kalshi profits. The key insight I learned is that you can adjust your quarterly payments throughout the year as your prediction market performance becomes clearer. If you overpaid in Q1-Q2 because you estimated too high, you can reduce Q3-Q4 payments accordingly. The IRS just cares that your total payments meet the safe harbor threshold by year end. One practical tip: I track my running net Kalshi profits monthly and recalculate my quarterly payment needs. This way I'm never surprised by a huge underpayment penalty. The annualized income installment method (Form 2210 AI) can also help if your income is really uneven throughout the year - it lets you match your quarterly payments to when you actually earned the income. The 110% safe harbor rule has saved me from penalties even in years when my prediction market income was all over the place.