The 2026 FIFA World Cup is bringing international visitors to the United States, and many can wager on match outcomes through prediction markets such as Kalshi and Polymarket. But the tax treatment of prediction market winnings remains unresolved.
A sourcing question that turns on a visitor’s status
For a foreign visitor, the first question is whether the activity creates any U.S. tax obligation at all. James Creech, a principal in the specialty tax practice at Baker Tilly, said a fan in the country for the tournament generally would not become a U.S. taxpayer based on time alone, because the substantial presence test requires presence in the United States of 183 days over three years under a set formula.
If the prediction platforms are treated as gambling, Creech said, the income is sourced to the United States. “If you come into the country and you’re doing this because it’s exciting, if it’s gambling and you win a big jackpot, then it’s U.S. sourced income,” he said. A casino-style operator would “withhold 30% to make sure you file a U.S. tax return,” so a visitor who won $1 million might receive $700,000 up front.
The result changes if the platforms qualify as financial products. “Generally, we treat the gains on the sale of financial products as not U.S. sourced, they’re sourced to wherever I’m a resident,” Creech said. Under that treatment, the same win would carry no U.S. tax. “I can make the same bet at the same time in the same location,” he said, but “my tax filing obligations in the U.S. are completely different.”
Gambling income or a financial product
The distinction turns on how the contracts are regulated. The law firm White & Case had previously noted that if winnings are treated as gambling, they are fully taxable as ordinary income under IRC § 61, and that gambling losses are deductible only to the extent of winnings under IRC § 165(d). For a foreign national, a wager placed in the United States produces U.S. source income subject to the 30% withholding tax.
Platforms such as Kalshi reject the gambling label and contend that they offer futures contracts regulated by the Commodity Futures Trading Commission (CFTC). The accounting firm BRC explained in an article on its website, depending on their characteristics, the contracts could fall under provisions governing gambling income, capital gains, or futures contracts under IRC § 1256, which applies a mark-to-market rule and treats 60% of net gain as long-term and 40% as short-term regardless of holding period.
That treatment is not automatic, as § 1256 requires a contract to be traded on a qualified board or exchanges. Another firm, Monaco CPA, observed that CFTC registration alone does not confer § 1256 status. The CFTC has classified the contracts as binary options that are swaps, a characterization that could trigger an exclusion under § 1256(b)(2)(B) that Congress enacted to keep such contracts from receiving the 60/40 treatment.
Loss rules and phantom income for U.S. residents
For U.S. residents, the classification affects how losses are handled. Under the One Big Beautiful Bill Act (OBBB), beginning in tax year 2026, taxpayers reporting gambling income can deduct only 90% of their losses against winnings, according to an alert by the law firm White & Case.
Creech said the limit can produce taxable income even for a bettor who breaks even economically. He said that “if I win $100,000 and then lose $100,000 … I’m net zero for income purposes, post [OBBB], I’ve still got $10,000 of income that I’ve got to pay tax [on], because I can only deduct $90,000 of those losses.”
Financial contract treatment avoids that outcome because gains and losses can be netted in full. “If I do it on Polymarket, then it’s … a financial contract, I’m not subject to that limitation. I can deduct the full $100,000,” Creech said. He added that the difference will likely move U.S. users who incur losses on traditional sports betting platforms toward prediction markets.
IRS guidance for participants, silence on prediction markets
The uncertainty contrasts with the guidance the IRS has issued for other World Cup participants. In an April 1, 2026, bulletin for withholding agents, the agency explained that foreign athletes and entities are generally subject to 30% withholding on U.S. source compensation and described filing obligations on forms including Form 1040-NR, U.S. Nonresident Alien Income Tax Return.
On June 10, 2026, the IRS and the Canada Revenue Agency announced a consensus on allocating player and team income across the host countries based on where matches are played. The agency has not addressed prediction market contracts.
Creech linked the silence to unresolved litigation between federal and state regulators. “States have taken a much more aggressive position on prediction markets,” he said, noting that Kentucky has led in regulating and taxing them and that the New York attorney general has pushed to have the contracts “declared gambling versus a financial contract.”
Creech said that if the contracts are ultimately deemed gambling, the income would be definitionally U.S. source, and that records showing where a wager was placed could expose a foreign winner who did not file. While he said this was unlikely for someone betting small amounts, he described a possible notice to a regular visitor who won a large jackpot: “you won a million dollars on the World Cup. Here it was gambling — you didn’t file a tax return.”
He said the question is likely to reach the U.S. Supreme Court. “Ultimately we are probably headed to the Supreme Court here,” he said. “There’s too much money for it not to.”
For more on the existing tax treatment of gambling winnings generally, see Checkpoint’s Federal Tax Coordinator ¶ J-1652.
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