Marginal tax rate

The rate applied to your next dollar of income, set by your tax bracket. Ordinary and gambling treatment tax Kalshi gains at this rate.

Your marginal rate is what ordinary-income treatment applies to your whole Kalshi gain, which is why the Section 1256 60/40 split, taxing part at lower long-term rates, usually produces a lower effective rate when it applies.

Your marginal tax rate is the rate applied to your next dollar of income, the top bracket your income reaches. Because the U.S. uses progressive brackets, only the income within each band is taxed at that band's rate, so your marginal rate is higher than your overall effective rate. Trading profit, as additional income, is generally taxed starting at your marginal rate.

This distinction is central to the Kalshi tax question. Under ordinary income treatment, your entire net is taxed at your marginal rate. Under Section 1256, only the 40 percent short-term portion is taxed at that marginal rate while the 60 percent long-term portion gets the lower capital-gains rate, which is exactly where the savings come from for higher earners.

Knowing your marginal rate is what lets you estimate the tax on a year of trading and compare treatments honestly. A trader in a 24 percent marginal bracket faces a very different bill than one at 37 percent, and the dollar value of Section 1256 treatment grows as the marginal rate rises.