The frenzy around the 2026 FIFA World Cup has pushed prediction market activity to unprecedented heights, with trading volumes soaring past $25 billion. Platforms like Polymarket and Kalshi have become hotspots where bettors wager on everything from the ultimate winner to specific match outcomes. Despite this surge, the IRS has yet to clarify how tax rules apply to these massive winnings.
Polymarket’s "World Cup Winner" market alone recorded over $3.9 billion in trades by early July 2026. When combined with Kalshi, total World Cup-related trading volumes range from $4.8 billion to $6.4 billion, with some estimates stretching beyond $25 billion when considering all associated betting platforms. These markets often use stablecoins, complicating tax considerations further. Meanwhile, the CFTC has been observing a dramatic uptick in activity since June, as fan anticipation built toward the event.
Uncertain Tax Treatments Cast Shadow Over Winnings
Traders face a puzzling scenario because the IRS has not issued any formal guidance on taxation for prediction market contracts. This leaves two main interpretations for their winnings, each with significantly different financial outcomes.
One scenario treats the earnings as gambling income, taxable as ordinary income at rates up to 37% for top earners. However, new rules from the One Big Beautiful Bill Act enacted in 2026 limit gambling loss deductions to 90% of winnings. To put it plainly, if a trader wins $100,000 but loses an equal amount, only $90,000 of those losses can offset taxable income, effectively taxing $10,000 that never actually turned into profit.
The alternative view is that these contracts qualify as regulated futures under IRC Section 1256. If accepted, traders benefit from a blended tax rate 60% of gains taxed at the long-term capital gains rate and 40% at the short-term rate along with more favorable loss offsetting rules.
While the IRS has released memos concerning tax obligations for World Cup athletes, it remains silent on how prediction market winnings should be reported. This is especially notable given that Kalshi and Polymarket operate under the Commodity Futures Trading Commission’s oversight an important factor since CFTC-regulated contracts have historically qualified for 1256 tax treatment. Kalshi’s victory in a 2024 court case to list election contracts underlined this precedent, suggesting a possible path for World Cup bets.
As millions continue to bet large sums on this global sporting event, the lack of clear tax direction from the IRS leaves traders navigating murky waters, potentially facing unexpected tax bills or missed opportunities for deductions.
