Catenaa, Sunday, July 12, 2026- Americans using prediction markets to bet on the World Cup may face a lighter tax burden than peers wagering through sportsbooks.
While the tax rules governing gambling are clear, the rise of prediction market bets, which are structured as investments, injects fresh uncertainty into how wagers are taxed.
The crux of the issue is whether the payouts from these prediction market bets are considered gambling, like wagers placed in sportsbooks and betting apps, or proceeds from financial instruments.
The answer has major implications since US tax law gives preferential treatment to investment income while penalizing gambling.
Treating prediction market bets like investments allows taxpayers to deduct losses fully and, under the most aggressive strategy, apply a lower tax rate. Though neither approach is without risk.
Supporters of more favorable tax treatment argue prediction markets differ from traditional sportsbooks in ways that extend beyond branding.
Rather than placing wagers with bookmakers, traders buy and sell standardized event contracts, with trades cleared through market infrastructure designed for financial products.
Critics counter that the underlying economics remain the same: Participants risk money on uncertain outcomes in hopes of payouts.
They argue courts and the Internal Revenue Service have historically looked beyond legal structure when deciding whether an activity amounts to gambling.
So far, the IRS has been silent on the issue. Some tax experts said the IRS may be reluctant to weigh in quickly given the politically charged environment surrounding prediction markets, including the involvement of President Donald Trump’s family in the sector.
Absent clear guidance, gamblers have been left to navigate the tax uncertainty themselves.
“This is kind of the Wild West right now. We don’t know who the sheriff in town is,” said Andrew Lautz, Director of Tax Policy for the Bipartisan Policy Center.
Sports gambling has exploded in recent years with more than a quarter of Americans saying they have an active online sports betting account, according to the Research Institute at Siena University.
State-regulated sports gambling revenue hit a record $16.96 billion last year, according to the American Gaming Association.
The increasing popularity of prediction markets as well as expansion into the space by cryptocurrency platforms, online sportsbooks and tech giants, such as Meta Platforms’ experimental foray, mean the issue is unlikely to disappear anytime soon.
Betting apps, like the ones operated by DraftKings and FanDuel, have dominated the explosion of online sports gambling. The platforms are regulated by states and are subject to both state levies and a federal excise tax.
Payouts from bets placed on the platforms face the same tax treatment as casino winnings, including limited deduction of losses.
But more recently, prediction markets regulated on the federal level by the Commodity Futures Trading Commission, like Kalshi and Polymarket US, have emerged as a force in the sports-betting arena.
Both DraftKings and FanDuel have also entered the space with their own prediction market products.
