The regulatory landscape for prediction markets shifted meaningfully in the third quarter of 2026, and traders are watching a stack of pending decisions that could reshape access, contract eligibility, and the tax treatment of winnings before year end. Below is a straight read on what changed, what is pending, and what it means for anyone trading on Kalshi, Polymarket, or the newer entrants angling for US authorization.
CFTC Priorities Under the Current Commission
The Commodity Futures Trading Commission has continued to signal that event contracts are within its jurisdiction, and the agency’s 2026 fiscal priorities memo, released in early September, put “orderly regulation of event contract markets” in the top five enforcement and rulemaking items. Prediction markets pricing this outcome had a “CFTC finalizes event contract rules by Q1 2027” contract trading near 58%, up from 41% at the start of the quarter.
Three items are in active review. First, the treatment of political event contracts on designated contract markets, which Kalshi has offered under court-approved terms since late 2024. Second, the framework for self-certified contracts and the scope of the “special rule” review that the agency invoked in 2023. Third, position limits and retail-facing disclosures for event contracts with cash-settled binary payoffs.
State-Level Activity Accelerating
New Jersey and Nevada continue to be the two states most active on this file. New Jersey’s Division of Gaming Enforcement issued a memorandum in August confirming that CFTC-regulated event contracts are not deemed sports wagering under state law when they are traded on a designated contract market, effectively easing the earlier standoff. Nevada regulators have taken a narrower view and continue to require operators to geofence certain sports-related contracts for Nevada residents.
Prediction markets tracking whether a fourth state joins New Jersey’s stance in 2026 currently price the outcome at 34%. Traders looking at state-level movement should focus on Massachusetts and Michigan, both of which have working groups studying the question.
Sports Contracts: The Live Question
The most watched item, by trading volume, is whether the CFTC will formally take a position on sports-outcome event contracts. Kalshi has offered a growing menu of NFL, NBA, and college football contracts since early 2026, and volume on those markets has run at levels comparable to the largest political contracts. Polymarket, which is not currently registered as a US-facing DCM, has continued to serve US users only through non-US routes and remains outside the CFTC framework for the moment.
Contracts pricing “Will the CFTC issue formal guidance restricting sports event contracts by year end?” are trading around 27%. The market view, in other words, is that sports contracts continue in their current posture for the balance of 2026, with any formal action pushed into 2027. Anyone trading on that assumption should watch for public statements from the agency’s commissioners, which have historically been the first signal ahead of formal action.
Tax and Reporting Changes
The IRS clarified in Notice 2026-52, issued in mid-September, that gains on CFTC-regulated event contracts are treated as short-term capital gains unless the contract is held to expiry and settled by cash payout, in which case the character depends on the specific contract terms. This is a change from the earlier ambiguity that had led some traders to report event contract gains as gambling winnings. Kalshi has confirmed that 1099-B forms will be issued for the 2026 tax year covering all US customer activity above the reporting threshold.
The practical upshot: traders who have been treating prediction market wins as gambling income should consult a tax professional before filing for 2026, because the new treatment can materially change both the rate and the ability to offset losses.
What to Watch Next
Three items to track over the next 60 days. The CFTC’s expected rulemaking notice on event contract self-certification, which prediction markets currently price at 71% to be issued by mid-November. A Second Circuit ruling in the pending appeal over the Kalshi congressional-control contracts, expected in October or November. And the outcome of the Massachusetts working group, which is scheduled to publish preliminary findings before Thanksgiving.
Underneath all of this, the direction of travel is clear: event contracts have moved from a regulatory gray zone into a recognized, if still contested, corner of US derivatives markets. The near-term risk is contract-specific rather than existential.
Where to Trade
For US-regulated event contracts across politics, economics, and sports, Kalshi remains the primary venue with the deepest liquidity in the categories most affected by the pending regulatory decisions. For crypto and international contracts outside the CFTC framework, Polymarket continues to offer the broadest menu, with the standard caveat that US access routes and tax treatment differ. For a full comparison of active US-facing platforms and the contracts each currently supports, see our rankings of the best prediction markets.