Super Bowl Sunday is the single largest day in sports betting, with more than $1.7B in legal wagers expected for the matchup between the Seattle Seahawks and New England Patriots in Santa Clara, California. But will the handle be lower this year, as prediction markets vie for market share with conventional sportsbooks? A Q&A-style update, below the fold.
What forms will prediction market platforms issue for 2025 . . . and 2026?
This question applies both generally and platform-by-platform. KPMG believes that platforms “will typically issue Form 1099-B” to traders, though Form 1099-MISC also may be appropriate. Others report that Kalshi issues both Form 1099-MISC and Form 1099-B, while PredictIt issues Form 1099-MISC. Robinhood apparently has given users conflicting information on reporting.
The distinction matters because the Form 1099-MISC reporting threshold rises to $2,000 for 2026 payments, while Form 1099-B reporting is transaction-driven. And some platforms may not report trades to the IRS at all, pushing all compliance into traders. The best information, of course, comes from lurking on subreddits and informal polling of the crucial 18-to-35 cohort. We’ll know (much) more after all forms have landed by mid-February.
As I’ve written, information reporting for prediction markets (whatever the Form) should be more robust than for gambling income—as long as there’s something being reported to the IRS. Given the prediction market boom in 2025 (and widespread speculation that event contracts may fall under § 1256), existing and new platforms may report more rigorously, perhaps on Form 1099-B—and more may do so in 2026.
The real revenue stakes for prediction market taxation—futures contracts versus gambling—are whether increased compliance due to information reporting on Forms 1099 outweighs the less-favorable taxation of gambling income after the OBBBA. This compliance-versus-doctrine trade-off is a great reason for the IRS to defer substantive guidance until the landscape settles, perhaps while clarifying information-reporting practices for event contract platforms.
What to watch: Will there be reporting consensus this year among platforms, and, if there’s not, will customers migrate to platforms with more lenient reporting practices?
Will Treasury align with the CFTC or state regulators (or neither) in its treatment of prediction markets?
States and other plaintiffs have filed at least nineteen federal lawsuits challenging prediction markets’ operations under state gambling laws. In January, Nevada filed a complaint in state court against Polymarket for violating the state’s gaming laws and received a temporary restraining order enjoining the platform’s operations. Late last week, Polymarket sought removal to federal court. In early February, Nevada filed a similar complaint against Coinbase for its prediction market activities. These disputes may turn as much on jurisdiction and preemption as on the substantive question of whether event contracts are, in practical effect, sports betting.
As this litigation progresses, state legislatures haven’t stayed on the sidelines. A Hawaii bill would treat prediction markets as gambling for purposes of the state’s ban. New York’s proposed ORACLE Act would prohibit “athletic event markets” along with other specific categories of prediction markets. In Iowa, SF 2085 takes the opposite tack: it would impose a (costly) permit requirement and platform-level tax on prediction markets. Meanwhile, sports gambling companies with (and without) event contract operations have emerged “as major political contributors” at the federal level for the 2026 midterm elections—a reversal from the industry’s history of state-level lobbying and a sign that the industry expects Washington to play a larger role in what comes next.
And the federal government does appear more receptive to prediction markets: the CFTC has signaled support for these platforms, including by withdrawing a Biden-era proposed rule that would have excluded election- and sports-related event contracts from CFTC-regulated markets. This support doesn’t settle the underlying legal questions, but it sharpens the federal-state conflict just as Treasury and the IRS face pressure to clarify how event contracts should be reported and taxed.
What to watch: All of the lawsuits. The Iowa legislation and any copycat bills in other states. The CFTC. How long can Treasury wait before weighing in on the issue?
How will media coverage affect the salience and usage of prediction markets for consumers—and the IRS?
The NFL reportedly added prediction markets to its list of prohibited advertisers at the Super Bowl, while conventional sports betting platforms are not on the blacklist. But, for residents of California and ten other states, prediction markets may offer the only widely accessible mechanism for monetary stakes on the big game. The sports gambling and prediction market industries—both relatively new, and both relatively controversial—should visibly and vocally compete for customers over Super Bowl weekend.
What to watch: The Super Bowl is great, but prediction markets seem tailor-made for high-volume, long-duration competitions like the Winter Olympics (especially given this year’s time difference). Event contracts (and sports gambling) may remain hot issues as the sports world turns to the cold. Will extended media coverage pressure the IRS to issue some form of guidance this spring?
Related TaxProf Blog coverage:
- Sports Gambling and the Taxation of Prediction Markets (Jan. 17, 2026)
- Sports Betting Alliance Sues Chicago over Proposed Licensing, Tax (Jan. 1, 2026)
- NY Times: Trump’s Big Beautiful Bill Will Gut the Gambling Industry (July 15, 2025)
- Getting a Handle on the Taxation of Sports Betting (Nov. 30, 2024)
- The Taxation of Prediction Markets (Sept. 6, 2008)
