Do you pay taxes on gambling winnings?
The short answer is yes: all gambling winnings are taxable income, from casinos to lotteries to sports bets. The longer answer, especially after a 2026 change to loss deductions, is worth understanding if you gamble or trade with any volume.
This guide covers how winnings are reported, how the new loss-deduction cap works, and why prediction-market contracts are not automatically treated as gambling. It is educational, not tax advice.
- Gambling winnings are reported as income and taxed at your ordinary rate.
- Gambling losses are deductible only if you itemize, and only up to the amount of your winnings, you can never deduct a net gambling loss against other income.
- Because you self-report and deductions are limited, contemporaneous records of your sessions, wins and losses, dates, and amounts, are essential.
- Here is the part many traders miss: contracts on a CFTC-regulated exchange like Kalshi are not necessarily gambling for tax purposes.
- For prediction-market traders, ContractTax computes your result under gambling, ordinary, and Section 1256 treatment side by side, so you can see exactly how much the gambling path, with its loss cap, would cost you versus the alternatives.
All winnings are taxable
Gambling winnings are reported as income and taxed at your ordinary rate. Payers issue a Form W-2G at certain thresholds and may withhold tax, but you owe tax on all winnings regardless of whether a form is issued.
There is no minimum below which winnings become tax-free. The form thresholds determine reporting by the payer, not whether the income is taxable to you.
How loss deductions work, and what changed
Gambling losses are deductible only if you itemize, and only up to the amount of your winnings, you can never deduct a net gambling loss against other income. New for tax years beginning after the end of 2025, only 90 percent of losses can be offset against winnings.
That 90 percent cap is the headline change. It can produce phantom income: even a gambler who roughly breaks even can owe tax, because a slice of the losses is no longer deductible. High-volume players feel this most.
Records are your defense
Because you self-report and deductions are limited, contemporaneous records of your sessions, wins and losses, dates, and amounts, are essential. Without them you risk reporting gross winnings with no offset.
Good records are also what let you use a defensible method for netting within a session rather than counting every up-tick as separate income.
Prediction markets are not automatically gambling
Here is the part many traders miss: contracts on a CFTC-regulated exchange like Kalshi are not necessarily gambling for tax purposes. Gambling is only one of three possible treatments for event contracts, alongside ordinary income and Section 1256, and it is generally the least favorable.
So a prediction-market trader is not locked into the gambling rules or the 90 percent loss cap the way a sportsbook bettor effectively is. The classification is unsettled, but it is a genuinely different and often better tax position.
Where ContractTax fits
For prediction-market traders, ContractTax computes your result under gambling, ordinary, and Section 1256 treatment side by side, so you can see exactly how much the gambling path, with its loss cap, would cost you versus the alternatives.
It is educational software, not tax advice, but it turns an abstract classification debate into real numbers for your account.