Polymarket is legal in the US on its new CFTC-registered exchange, Polymarket US, which received designation as a contract market on July 9, 2025. The original offshore Polymarket platform is not legal for U.S. residents and continues to block American users through geofencing. If you live in the United States and want to trade prediction-market contracts on Polymarket, the regulated U.S. exchange is the only lawful route.
Why Polymarket Was Off-Limits Before 2025
In January 2022, the Commodity Futures Trading Commission settled charges against Polymarket for offering event-based binary options contracts without registering as either a designated contract market or a swap execution facility. The CFTC found that the platform let retail customers trade these contracts off-exchange, bypassing consumer protections that federal law requires for derivatives. The settlement carried a $1.4 million civil monetary penalty.
The order also required Polymarket to wind down every market that violated the Commodity Exchange Act, stop offering unregistered contracts to the public, and facilitate refunds for participants unable to exit their positions. After that action, Polymarket geofenced U.S. traders and operated only offshore for the next three years.
What Polymarket US Lets You Do
Rather than stay out of the American market permanently, Polymarket pursued CFTC registration. QCX LLC, doing business as Polymarket US, received its designation as a contract market on July 9, 2025. That designation carries real obligations. The exchange must comply with 23 core principles under Section 5(d) of the Commodity Exchange Act, including real-time trade surveillance, position limits, financial integrity of transactions, audit trails, and disciplinary procedures against rule-breakers.
For you as a user, the most visible change is identity verification. Polymarket US requires full KYC for American traders, a sharp departure from the pseudonymous trading available offshore. The exchange operates under a formal rulebook that spells out prohibited conduct, including trading on stolen confidential information, acting on illegal tips, and trading when you hold a position of authority that could influence an event’s outcome. Violations can lead to suspension, monetary penalties, loss of trading privileges, or referral to law enforcement.
In March 2026, Polymarket published enhanced market integrity rules covering both platforms. On the U.S. side, those rules prohibit fraud, spoofing, wash trading, front-running, and any attempt to manipulate contract prices. A February 2026 CFTC advisory reminded the industry that the Commission retains full authority to investigate and prosecute illegal trading on any designated contract market, prediction-market exchanges included.
The Offshore Platform Is Still Blocked
The original Polymarket, which runs on decentralized finance infrastructure and is domiciled offshore, still geofences U.S. users. It identifies your location through your IP address and blocks account creation and trading for anyone connecting from the United States. The platform’s terms of service explicitly prohibit U.S. persons from participating.
Some users try to get around this with a VPN. That approach carries real risks. If Polymarket detects U.S. access, it can freeze or close the account. Converting prediction-market stablecoins back to dollars through a U.S.-based exchange creates a paper trail that connects VPN-masked activity to a real identity. No individual user has been publicly prosecuted for VPN access, but anyone doing it has no legal recourse if funds are frozen, contracts are voided, or the platform simply refuses withdrawals. You are violating the platform’s terms of service and putting your money somewhere with no obligation to give it back.
Why Registration Matters Under Federal Law
The Commodity Exchange Act, codified at 7 U.S.C. § 1 et seq., gives the CFTC jurisdiction over contracts based on the outcomes of future events. These contracts function like binary options: you buy a “yes” or “no” position, and the contract either pays out or expires worthless depending on whether the event happens. Federal law treats them as swaps or options, so any platform offering them to retail customers must register with the CFTC.
The dividing line is between retail customers and what the law calls “eligible contract participants.” Under 7 U.S.C. § 1a(18), an individual qualifies as an eligible contract participant only with more than $10 million in discretionary investments, or $5 million if the transaction hedges an existing asset or liability. Almost every ordinary trader falls below those thresholds and is therefore a retail customer. Retail customers can only trade event contracts on a fully registered designated contract market. That registration is what makes Polymarket US a legal venue and the offshore platform an illegal one for Americans.
Polymarket US is not the only registered exchange offering event contracts to U.S. traders. The CFTC has also designated Kalshi, ForecastEx, Railbird Exchange, and Xchange Alpha as contract markets. If a platform is not on the CFTC’s list of designated contract markets, retail trading on it is not lawful for U.S. residents.
Taxes on Your Winnings
The IRS has not issued specific guidance on how to classify prediction market income, which leaves three possible frameworks. Which one applies changes the bill significantly.
- Gambling income. Winnings are reported as other income at your ordinary rate. Losses can only be deducted as an itemized deduction, and only up to the amount of your winnings. Starting in 2026, a new provision in the One Big Beautiful Bill Act limits the deduction further to 90% of wagering losses, meaning a taxpayer who breaks even on prediction markets could still owe tax.
- Capital gains. If contracts are treated as capital assets under IRC § 1221, gains and losses can be netted. Net capital losses offset up to $3,000 of ordinary income per year. Long-term gains on positions held more than a year qualify for preferential rates up to 20%, compared with up to 37% for ordinary income.
- Section 1256 contracts. Contracts traded on a CFTC-regulated exchange may qualify for the 60/40 rule, where 60% of gains are taxed as long-term capital gains and 40% as short-term, regardless of holding period. Open positions are marked to market at year-end. This treatment applies only to contracts traded on a qualified board or exchange regulated by the CFTC, which would include Polymarket US but not the offshore platform.
Without IRS guidance, tax professionals are taking reasonable positions based on the facts. Someone trading frequently on a regulated exchange has a stronger argument for Section 1256 treatment than someone who placed a single bet offshore. Document every transaction, track cost basis carefully, and work with a tax advisor who understands derivatives. State taxes add another layer, with rates on gambling or investment income varying widely.
Your Personal Exposure If You Trade Illegally
The CFTC’s enforcement history focuses on platform operators rather than individual retail traders. The 2022 Polymarket action targeted the company, not its users. The Commission’s 2026 enforcement docket includes cases against firms for forex fraud, misappropriation of confidential information, and illegal kickbacks, but no published actions against retail users for placing trades on an offshore exchange.
That does not mean your exposure is zero. The CFTC has statutory authority to investigate anyone involved in commodity futures and options trading, and its February 2026 advisory on event contracts made clear the agency considers insider trading, wash sales, and market manipulation on prediction markets fully within its enforcement reach. Someone who trades on material nonpublic information about an event’s outcome faces the same liability whether the trade happens on a regulated exchange or offshore. The more practical risk for most people is financial rather than legal: frozen accounts, lost deposits, and no path to recover funds when something goes wrong on a platform that has no obligation to protect you.