DraftKings withholds 24% tax on $5,000+ wins while Kalshi bets face uncertain treatment
More than $230 million was wagered on Kalshi and $3.3 billion through regulated sportsbooks for the NCAA championship, but IRS guidance on the tax treatment of prediction market contracts remains absent. DraftKings issues W-2G forms on wins over $2,000 exceeding 300 times wager and withholds 24% federal tax on payouts above $5,000.
1. NCAA Betting Volumes
Bettors risked over $230 million on Kalshi and $3.3 billion through regulated sportsbooks for the men’s NCAA championship, illustrating the scale of wagers that could face divergent tax treatments depending on platform.
2. DraftKings Tax Withholding
DraftKings will issue W-2G forms for wins exceeding $2,000 that surpass 300 times the wager and automatically withholds 24% in federal taxes on payouts above $5,000, aligning sports betting gains with ordinary income reporting.
3. Prediction Market Tax Uncertainty
Prediction market contracts operate under CFTC regulation but lack formal IRS guidance, creating confusion over whether winnings qualify for preferential tax treatment or must be declared as ordinary income without clear reporting support.