Polymarket Taxes 2026: How to Report Winnings and Losses

If you make money trading on Polymarket, those profits are taxable in the United States. The harder question is how they should be taxed.

Unlike a stock trade or a traditional sportsbook wager, Polymarket sits at the intersection of prediction markets, derivatives, and crypto. The international version of Polymarket operates on-chain using tokenized positions and Polymarket USD (pUSD), while the newer Polymarket US is a separate, CFTC-regulated platform.

The IRS has not issued guidance specifically explaining how Polymarket positions should be characterized. Depending on the platform and the facts, potential frameworks include capital gains treatment, gambling income, or — for qualifying regulated contracts — Section 1256 treatment.

For the international, crypto-based version of Polymarket, capital asset treatment is a common and supportable approach, with each sale or redemption of an outcome token treated as a disposition. But it is not a Polymarket-specific rule the IRS has formally endorsed.

If you don't want to reconstruct thousands of Polymarket transactions yourself, Awaken supports Polymarket natively (and the rest of crypto taxes as well). Connect your wallet and Awaken can identify Polymarket buys, sells, redemptions, rewards, and other on-chain activity and calculate the resulting gains and losses.

Here's how Polymarket taxes work in 2026.

Are Polymarket winnings taxable?

Yes.

Being paid through crypto, pUSD, or an on-chain prediction market does not make income exempt from tax. The IRS treats digital assets as property and requires taxpayers to report taxable income, gains, and losses involving digital assets.

The important question is therefore not whether Polymarket profits are taxable, but what type of income or gain they represent.

For someone trading the international version of Polymarket, one common approach is to treat the outcome tokens as capital assets. Under that framework, you calculate a capital gain or loss whenever you sell or redeem a position.

Other taxpayers or tax professionals may conclude that prediction-market activity is better characterized as wagering. And regulated contracts traded through Polymarket US require a different analysis altogether.

There is not yet a one-size-fits-all IRS rule specifically for prediction markets.

Polymarket US vs. Polymarket.com: an important distinction

As of 2026, there are effectively two different Polymarket products.

Polymarket itself describes these as separate products with separate accounts. US residents use Polymarket US, while Polymarket.com is the international blockchain-based platform. Polymarket US operates through QCX LLC, which the CFTC lists as a designated contract market.

That distinction matters because you should not automatically apply the tax treatment of historical on-chain Polymarket transactions to trades made through Polymarket US.

It also works in the other direction: the fact that Polymarket now operates a CFTC-regulated US exchange does not retroactively turn old Polymarket.com transactions into regulated US futures contracts.

Does Polymarket send a 1099?

If you're trading on Polymarket.com, do not rely on receiving a 1099 before reporting your activity.

Historically, the on-chain version of Polymarket has required users to reconstruct their own trading activity rather than relying on traditional brokerage tax forms. Transactions are instead recorded publicly on Polygon.

That matters even more beginning with the rollout of Form 1099-DA, the new IRS information return for certain digital asset broker transactions. US brokers are now subject to digital-asset reporting requirements, including gross-proceeds reporting and, for some transactions beginning in 2026, cost-basis reporting. Foreign and noncustodial platforms may not necessarily provide the same reporting.

Most importantly, receiving no tax form does not eliminate your reporting obligation. The IRS specifically states that taxpayers must report digital-asset income, gains, and losses whether or not they receive Form 1099-DA.

Polymarket US is a separate regulated US platform, so its information-reporting obligations and year-end tax documents may differ from the international product. Traders should use any tax forms provided by the platform, but those forms do not replace the need to maintain accurate transaction records.

How Polymarket works today: pUSD and outcome tokens

A major change happened in April 2026.

Older Polymarket activity used USDC.e directly as collateral. Following Polymarket's 2026 exchange upgrade, the international platform now uses Polymarket USD (pUSD) for trading.

pUSD is an ERC-20 token on Polygon backed 1:1 by USDC. Polymarket's current documentation says pUSD is used as collateral for all trading, and deposits from supported blockchains can be automatically bridged and converted into pUSD.

When you trade a typical market such as:

“Will the Federal Reserve cut interest rates at its next meeting?”

you are buying or selling tokenized shares representing possible outcomes.

If a YES share trades for $0.40, buying 1,000 shares costs approximately $400. If YES ultimately wins, each winning share becomes worth $1. If the outcome loses, the position ultimately has no redemption value.

That creates several layers of potential tax activity:

You may convert another asset into pUSD, use pUSD to acquire outcome tokens, sell those outcome tokens before resolution, redeem winning positions, and eventually convert your pUSD back into another asset or dollars.

Each step needs to be analyzed separately.

Are Polymarket winnings capital gains or gambling income?

This is the biggest unresolved Polymarket tax question.

The IRS has not issued a ruling saying, “Polymarket is taxed this way.” Instead, taxpayers have to apply existing tax rules to a relatively new product.

Approach 1: Capital asset treatment

For the international on-chain platform, one supportable approach is to treat Polymarket outcome tokens as capital assets.

The IRS defines digital assets broadly as digital representations of value recorded on cryptographically secured distributed ledgers and treats digital assets as property for federal tax purposes.

Under a capital treatment approach, purchasing an outcome token establishes its cost basis. Selling or redeeming it produces a capital gain or loss equal to the difference between its proceeds and basis.

Most Polymarket positions are held for substantially less than one year, so gains would usually be short-term capital gains, taxed at ordinary income tax rates.

This is the framework Awaken uses when generating capital gain and loss calculations for on-chain Polymarket activity.

However, digital-asset status does not automatically settle every characterization question. Prediction contracts have features that resemble wagering, and there is currently no Polymarket-specific IRS authority confirming capital treatment.

Approach 2: Gambling or wagering treatment

Another possible interpretation is that prediction-market activity constitutes wagering.

If Polymarket activity were treated as gambling, winnings would generally be ordinary gambling income rather than capital gains.

Loss treatment would also become significantly less favorable.

Beginning in 2026, federal law limits the deduction for wagering losses to 90% of the losses incurred, and no more than total wagering gains. For nonprofessional gamblers, gambling losses are generally claimed as itemized deductions.

That can create unpleasant results.

For example, someone with $100,000 of winning wagers and $100,000 of losing wagers may have broken even economically. But under the 2026 wagering-loss rules, only $90,000 of those losses may be deductible, potentially leaving $10,000 of taxable net income despite no economic profit.

That's one reason the distinction between capital trading and wagering is so important.

Approach 3: Section 1256 treatment

Section 1256 provides favorable treatment for certain regulated futures and options contracts.

Qualifying Section 1256 gains and losses are generally treated as 60% long-term and 40% short-term, regardless of how long the position was actually held. Open contracts are also generally marked to market at year-end and reported using Form 6781.

This treatment is most relevant when analyzing regulated US prediction-market contracts.

Polymarket US is now a CFTC-designated contract market, which makes Section 1256 analysis relevant. But being traded on a DCM does not automatically make every event contract a Section 1256 contract. The specific instrument still needs to meet the statutory definition of a regulated futures contract, nonequity option, or another qualifying Section 1256 instrument.

For the historical crypto-based Polymarket.com product, Section 1256 is considerably harder to support because traders are buying and selling blockchain-based outcome tokens rather than contracts traded through the regulated US exchange.

Anyone taking a Section 1256 position on substantial prediction-market activity should discuss that treatment with a tax professional familiar with derivatives.

Polymarket taxable events, step by step

Assuming you use capital asset treatment for the international on-chain product, here's what a typical Polymarket transaction lifecycle looks like.

1. Funding Polymarket

Buying USDC with US dollars generally does not generate a gain or loss. You have simply acquired a digital asset and established its cost basis.

Moving the same asset between your own wallets generally does not change beneficial ownership and therefore should not, by itself, represent a sale.

Polymarket now converts supported deposits into pUSD for trading. The IRS has not issued guidance specifically addressing pUSD or Polymarket's 1:1 wrapping mechanism.

Because pUSD and USDC are technically separate digital assets, the conversion should be tracked rather than simply ignored. Whether a 1:1 wrapper conversion itself constitutes a taxable disposition can depend on the facts and the tax position being taken.

In practice, where both assets are worth approximately $1 and have approximately $1 of basis, even a taxable conversion would often generate little or no economic gain.

2. Buying Polymarket shares

Suppose you buy:

1,000 YES shares at $0.40 each.

Your total purchase price is $400, plus any fees that are properly included in basis.

Under the capital approach, your basis in the 1,000 outcome tokens is approximately $400.

3. Selling a position before the market resolves

Suppose those 1,000 YES shares increase from $0.40 to $0.75 and you sell them.

You receive approximately $750.

Your calculation is:

$750 proceeds - $400 basis = $350 capital gain

If you held the position for one year or less, the gain would be short term under the capital treatment approach.

The same works in reverse.

If you purchased the position for $400 and sold it for $250, you would have a $150 capital loss.

4. Holding a winning position through resolution

Suppose instead that you keep the 1,000 shares until resolution and YES wins.

Your shares are redeemable for $1 each, giving you $1,000 of proceeds.

With $400 of original basis:

$1,000 proceeds - $400 basis = $600 capital gain

Your redemption also leaves you holding approximately $1,000 of pUSD with its own cost basis for future tax accounting.

5. Holding a losing position through resolution

If your outcome loses, the tokens have no redemption value.

Under a capital treatment approach, disposing of or redeeming a losing position for zero can produce a capital loss equal to your remaining basis.

If you paid $400 for a position that ultimately settles at zero, that could create a $400 capital loss.

The mechanics matter, however. If a token simply sits in your wallet after becoming economically worthless without an identifiable disposal or redemption, loss recognition can become more complicated. Good crypto tax software should track the actual on-chain resolution and redemption activity rather than simply assuming that every token priced at zero has been disposed of.

6. Withdrawing and converting back to dollars

When you eventually convert pUSD or another digital asset back into USDC or US dollars, that conversion may represent another disposition.

Again, if a stablecoin has maintained its $1 value and your basis is approximately $1, the resulting gain or loss may be negligible.

But “negligible” is different from “nonexistent.” The transaction still needs to be accounted for correctly.

A complete Polymarket tax example

Suppose you deposit $500 into Polymarket and ultimately receive 500 pUSD.

You buy 1,000 YES shares for $0.40 each, spending 400 pUSD.

The market later resolves YES.

You redeem the shares for 1,000 pUSD.

Under the capital asset approach, the outcome-token portion looks like this:

There can also be separate accounting entries associated with disposing of pUSD when purchasing the shares and later converting pUSD back to USDC or dollars.

If pUSD remained worth exactly $1 and had $1 of basis throughout, those stablecoin transactions may generate no meaningful additional gain or loss.

The important point is that your taxable profit is not determined simply by the amount you withdraw from Polymarket.

You need the cost basis and proceeds of the underlying trades.

How to report Polymarket taxes

The forms you use depend on the tax characterization you adopt.

If you use capital gains treatment

Sales and exchanges of capital digital assets generally belong on Form 8949, with the totals flowing onto Schedule D.

IRS Form 8949 instructions specifically say taxpayers should report sales and exchanges of capital digital assets even if they did not receive Form 1099-B, Form 1099-DA, or another information return.

For every disposition, you generally need the asset or position, date acquired, date disposed of, proceeds, cost basis, and resulting gain or loss.

This is where active Polymarket traders run into trouble: a single economic “bet” can involve several blockchain transactions.

If you use gambling treatment

Gambling winnings are generally reported as gambling income, while eligible gambling losses are handled separately.

For 2026, the new 90% wagering-loss limitation makes this treatment especially important to model carefully before filing.

If a contract qualifies for Section 1256

Section 1256 gains and losses are generally reported on Form 6781, including the 60/40 character split and year-end mark-to-market rules.

Do not simply choose whichever treatment produces the lowest tax bill. Your reporting position should reflect how the actual transactions fit within the tax law and should be applied consistently.

Can you deduct Polymarket losses?

Under capital treatment, yes.

Capital losses can offset capital gains from Polymarket as well as capital gains from other investments such as stocks or crypto.

If your total capital losses exceed your gains, individuals can generally use up to $3,000 of net capital losses per year against ordinary income and carry remaining losses forward to later years.

This can make accurate tracking of losing Polymarket positions just as important as tracking winners.

Someone who imports only their profitable redemptions while failing to recognize losing positions could materially overstate their taxable gain.

Under the wagering framework, the rules are very different. Starting in 2026, deductible wagering losses are limited to 90% of losses and cannot exceed wagering gains.

What records should you keep for Polymarket taxes?

At minimum, your records should allow you to reconstruct the market traded, outcome purchased, date and time, quantity, purchase price, sale or redemption proceeds, fees, wallet address, and any pUSD or stablecoin transactions associated with the trade.

For Polymarket.com users, the blockchain provides an unusually detailed historical record — but raw blockchain data is not the same thing as a usable tax report.

A block explorer may show that your wallet transferred an ERC-1155 token and received pUSD. It does not necessarily tell your accountant that the token represented 1,000 YES shares in a particular election market, what you originally paid for those shares, or how the transaction should be categorized.

That's why Polymarket-specific transaction interpretation matters.

How Awaken automatically handles Polymarket taxes

Awaken has native Polymarket support that fully automates your tax calculations. That means when you connect your Polymarket wallet to Awaken, your taxes figures are calculated automatically, without requiring any work from you.

Add your Polymarket wallet to Awaken and the software imports the underlying Polygon activity, identifies Polymarket contracts, recognizes outcome-token trades, tracks redemptions and losses, and calculates the associated cost basis and capital gains.

That means you don't have to manually translate thousands of contract interactions into tax transactions.

Awaken can also track the activity around the Polymarket position — including stablecoin movements, transfers between your own wallets, and other crypto transactions — so your Polymarket history is reconciled with the rest of your portfolio rather than calculated in isolation.

Once everything is reconciled, you can generate your crypto tax reports alongside the rest of your trading activity.

Polymarket taxes FAQ

Does Polymarket report to the IRS?

Do not assume that the absence of a Polymarket tax form means your transactions do not need to be reported. Polymarket.com transactions occur on a public blockchain, and US taxpayers are responsible for reporting taxable income and dispositions regardless of whether they receive an information return.

Polymarket US is a separate regulated US exchange and may have different information-reporting obligations from the international on-chain platform.

Does Polymarket send a 1099?

Historically, users of the international Polymarket product have generally needed to track and report their own on-chain activity rather than relying on a traditional brokerage 1099.

US digital-asset broker reporting is changing with Form 1099-DA, but the IRS explicitly says taxpayers must report taxable digital-asset transactions even when they do not receive the form. Polymarket US should be analyzed separately because it is a regulated US platform.

Does Polymarket issue a 1099-DA?

Form 1099-DA is the IRS information return used by qualifying digital-asset brokers to report certain digital-asset dispositions.

Whether a particular Polymarket transaction results in Form 1099-DA depends on the platform, transaction, and applicable broker-reporting rules. You should maintain your own transaction history rather than depending on receiving one.

Do I owe taxes on Polymarket if I don't withdraw the money?

Potentially, yes.

Under capital treatment, selling an outcome token or redeeming a winning position can create a taxable gain even if you leave all of the resulting pUSD inside your wallet or Polymarket account.

Tax generally depends on the underlying transaction, not whether you later transfer the proceeds to your bank.

Are Polymarket winnings gambling income?

Possibly, but the IRS has not issued Polymarket-specific guidance settling the question.

A capital-asset approach treats the on-chain outcome tokens as investment property and recognizes capital gains and losses when they're sold or redeemed. A wagering approach would instead treat the activity under gambling rules.

The difference can materially change both the tax rate and the treatment of losses.

Are Polymarket winnings capital gains?

They can be reported as capital gains under a capital-asset treatment of Polymarket's on-chain outcome tokens.

Under this approach, your gain equals your proceeds minus your adjusted cost basis. Positions held for one year or less generally produce short-term gains or losses.

Because the IRS has not specifically ruled on prediction-market tokens, taxpayers with significant activity should consider having their chosen treatment reviewed by a tax professional.

Can I deduct Polymarket losses?

Under capital treatment, realized Polymarket losses can generally offset capital gains. Excess net capital losses may also offset up to $3,000 of ordinary income annually, with additional losses carried forward.

If the transactions are characterized as wagering instead, different and substantially more restrictive loss rules apply.

Do I need to report every Polymarket trade?

Under a capital asset approach, each taxable disposition needs to be included in your tax calculations.

That can include selling outcome shares, redeeming positions, and potentially disposing of digital assets used to purchase them.

This is why a trader with only a few dozen prediction-market positions can still end up with hundreds or thousands of underlying tax transactions.

Is converting USDC to pUSD taxable?

There is no IRS guidance specifically addressing Polymarket's pUSD wrapper.

pUSD and USDC are technically distinct digital assets, so the conversion should be tracked and analyzed rather than automatically ignored. Different practitioners may reach different conclusions about a 1:1 wrapper where economic ownership remains substantially unchanged.

If the conversion is treated as taxable but both assets are worth $1 and have approximately $1 of basis, the actual gain or loss will often be minimal.

Is Polymarket US taxed differently from Polymarket.com?

Potentially.

Polymarket.com is an international crypto-based platform using blockchain outcome tokens and pUSD. Polymarket US is a separate, CFTC-regulated US exchange that trades fiat-based event contracts.

That makes derivatives rules, including Section 1256, more relevant to Polymarket US. However, CFTC regulation alone does not automatically establish that every Polymarket US contract qualifies for Section 1256 treatment.

Do Polymarket trades qualify for the 60/40 rule?

You should not assume they do.

The 60/40 rule applies to qualifying Section 1256 contracts. Historical on-chain Polymarket outcome tokens do not automatically become Section 1256 contracts simply because Polymarket now also operates a regulated US exchange.

For contracts traded through Polymarket US, Section 1256 may warrant analysis, but the specific contract must satisfy the requirements of Section 1256.

The bottom line

Polymarket taxes are more complicated than simply adding up your deposits and withdrawals.

The international product involves blockchain-based outcome tokens, pUSD, sales, redemptions, and potentially thousands of digital-asset transactions. At the same time, the IRS has not yet provided prediction-market-specific guidance definitively resolving whether those positions should be treated as capital assets or wagers.

Polymarket US adds another layer because it is now a separate CFTC-regulated exchange whose contracts require their own tax analysis.

Whatever treatment you use, the fundamentals are the same: keep complete records, report your taxable activity even when you don't receive a 1099, and apply your tax methodology consistently.

And if you don't want to decode every Polygon transaction yourself, Awaken can automatically import and categorize your Polymarket activity, calculate your gains and losses, and generate the reports you need for tax season.

Also read:

• Prediction Market Taxes

• Kalshi Taxes

• ChatGPT Crypto Taxes

• Pump Fun Taxes