Won Money on Michigan's Championship? The Site You Bet On May Determine How Much You Take Home

Hundreds of millions of dollars were bet on Monday's NCAA championship game, but not all winnings are created equal.

Bettors wagered more than $230 million on Kalshi before Monday's tipoff, and $3.3 billion was bet through regulated sportsbooks on the tournament. Americans who bet on Michigan using DraftKings (DKNG) could owe different taxes than those who bought contracts for the same outcome on Kalshi or Robinhood (HOOD).

Prediction markets like Kalshi and Polymarket have exploded alongside a broader gambling boom. With state attorneys general and the CFTC all fighting over who gets to police them, the rules governing your ability to trade these contracts could shift overnight.

The IRS hasn't issued guidance on prediction-market winnings, and neither Kalshi nor Robinhood helps users figure out how to report them on their taxes.

At a sportsbook, you bet against the house. With a prediction market app, you buy binary contracts priced between $0 and $1 that settle at $1 if the event happens and $0 if it doesn't.

Kalshi operates as a Commodity Futures Trading Commission (CFTC)-regulated designated contract market, the same category as securities derivatives. That lets Kalshi operate in states where sports betting is banned.

But the CFTC's designation is legally unsettled: A federal court in New Jersey has ruled that CFTC jurisdiction preempts state gambling laws, while state courts in Nevada and Massachusetts, and a federal court in Maryland, have ruled the other way.

Sports events drive roughly 90% of Kalshi's volume, according to estimates—the rest covers Fed rate decisions, hurricanes, and other events. Robinhood, whose platform processed 12 billion event contracts in 2025, routes its prediction market orders through Kalshi's exchange.

The IRS has long treated gambling winnings as ordinary income, taxed at your marginal rate.

Say you picked Michigan to win the NCAA championship on DraftKings. Your sportsbook will send you a W-2G on wins of $2,000 or more that are also at least 300 times your original bet. It will withhold 24% in federal taxes only when those winnings exceed $5,000.

For most sports wagers, you won't get a form in the mail, and taxes won't be withheld automatically. But you'll still owe the IRS.

For the feds, losses offset winnings only if you itemize, and only up to what you won. The One Big Beautiful Bill Act, signed last summer, caps gambling-loss deductions at 90% of winnings starting this year. Win $10,000 at a sportsbook and lose $10,000 in the same year, and you still owe tax on $1,000 you never kept.

States also take a piece of the winnings—all but nine tax gambling income. North Carolina, for instance, doesn't allow any deduction for gambling losses at the state level, so you pay state income tax on gross winnings, regardless of any losses. Other states, like Arizona, deduct taxes before the money leaves the state.

The IRS hasn't issued any regulatory guidance on how to classify gains from prediction markets. Tax professionals have floated three approaches, leaving filers to wager on which one is on the right side of the law.

State taxes add to the puzzle. New Jersey lets gamblers fully net losses but doesn't recognize capital-gains rates, so a trader claiming Section 1256 federally could still owe full ordinary income tax.

The IRS and state tax officials will eventually match prediction-market sums to tax returns, guidance or not.

Muddying things still further: the rules may shift before the next filing season. The Ninth Circuit will hear arguments on Kalshi's legality on April 16, and 39 state attorneys general have joined a brief calling the platform illegal gambling.