How Kalshi taxes work: the trader's guide
If you traded on Kalshi this year, you owe tax on your gains, even if no form ever shows up in your inbox. The genuinely hard part isn't whether the income is taxable (it is), it's how it gets classified, because that single choice can swing your bill by thousands of dollars on the same set of trades.
This guide walks through the three ways event-contract income can be treated, why the question is still unsettled, and which IRS forms each path involves. It is educational, not tax advice. The classification question is contested enough that anyone with meaningful volume should run their specific situation past a CPA.
The income is taxable whether or not you get a form
Kalshi does not issue a comprehensive broker-style 1099-B for your event-contract trades. In practice you may see a 1099-INT for interest on cash balances or a 1099-MISC for referral credits and rewards, but the trading P&L itself is generally left to you to report.
The absence of a form does not change your obligation. The IRS requires you to report income regardless of whether a third party told them about it, so the burden of reconstructing your gains, losses, and fees falls on you. Keeping a complete record of every fill and settlement is the foundation of getting this right.
Three possible treatments, three very different bills
Ordinary income is the most conservative path: your net result is taxed at your regular marginal rate. It is simple, defensible, and what many cautious traders and advisors default to.
Section 1256 treatment is the most favorable if it applies: gains are split 60% long-term and 40% short-term regardless of how long you held, which blends down to a lower effective rate for most people. The catch is that whether Kalshi contracts actually qualify is contested (see the next section).
Gambling treatment is generally the least favorable. Winnings are ordinary income and, for tax years beginning after the end of 2025, only 90% of losses can be deducted against winnings, which can create 'phantom income' for a trader who roughly breaks even on paper.
Why the classification is still unsettled
The reason there is no single right answer is that the IRS has not issued specific guidance on prediction-market event contracts. Kalshi being a CFTC-regulated Designated Contract Market is the strongest point in favor of Section 1256, since that status is a prerequisite for the discussion.
But regulation alone does not settle it. The CFTC treats these binary event contracts as a kind of swap, and the tax code contains an exclusion that can keep swaps out of Section 1256's 60/40 treatment. That tension (regulated exchange on one side, swap-style instrument on the other) is the heart of why reasonable professionals disagree.
The forms each path involves
A Section 1256 position is reported on Form 6781, which flows the 60/40 split into Schedule D. Because the position is aggressive for event contracts, many CPAs pair it with a Form 8275 disclosure to flag the stance and reduce penalty exposure if the return is examined.
Capital-gains-style reporting uses Form 8949 and Schedule D. Ordinary-income reporting typically lands on Schedule 1. The right combination depends on the treatment you and your advisor choose, which is exactly why seeing the dollar difference between them before you file is so useful.
Where ContractTax fits
ContractTax takes your Kalshi trade history and computes your result under each treatment side by side, so you can see, in real dollars, what ordinary, Section 1256, and gambling treatment would each cost you. It produces the underlying numbers in a form your preparer can work from, and tracks your P&L year-round rather than only at filing time.
It does not pick your tax position for you or replace a professional. What it does is turn a pile of fills into a clear picture so the conversation with your CPA starts from real figures instead of a spreadsheet you dread building.