Do Prediction Market Traders Need to Pay Quarterly Estimated Taxes?

The US tax system is pay-as-you-go. If you have a job, your employer withholds tax from every paycheck. Nobody withholds tax from your Kalshi or Polymarket profits, so if you have a big year, you may be expected to pay some of that tax during the year instead of all at once in April.

Who needs to pay

In general, you should make estimated payments if you expect to owe $1,000 or more in federal tax for the year after subtracting withholding and credits. A few hundred dollars of trading profit on top of a salary usually won't cross that line. A profitable year of active trading easily can.

When payments are due

Federal estimated payments are due four times a year, around:

• April 15 for income earned January through March
• June 15 for April and May
• September 15 for June through August
• January 15 of the next year for September through December

When a date falls on a weekend or holiday, it moves to the next business day. Most states with an income tax have their own estimated payments on similar dates.

How to avoid an underpayment penalty

You generally won't owe a penalty if your withholding plus estimated payments cover at least one of these:

• 90% of this year's tax, or
• 100% of last year's tax, or 110% if last year's adjusted gross income was over $150,000 ($75,000 if married filing separately).

The prior-year rule is the easiest to use for traders, because you don't need to predict how the rest of the year will go. Pay a quarter of last year's total tax each quarter, and you're covered even if you have a huge year.

Two tricks for traders

• Raise your paycheck withholding instead. If you have a job, you can increase withholding with a new Form W-4. Withholding counts as if it were paid evenly through the year, even if you increase it in December.
• Use the annualized method for lumpy years. If most of your profit came late in the year, the annualized income method (Form 2210, Schedule AI) can lower or remove the penalty for earlier quarters.

This guide is general information, not tax advice. Tax treatment of event contracts is still evolving, so confirm how it applies to you with a tax professional.