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While states across the US are working hard to push prediction markets out, Iowa lawmakers have introduced a major proposal that would place them under state oversight.
Senate File 2085, introduced by Sen. Mike Klimish and referred to the Ways and Means Committee on January 21, sets out a framework that requires operators to secure permits before conducting business, with fees and taxes tied to their revenues.
The bill defines event-driven contracts as binary financial products tied to outcomes such as elections, legislative actions, sporting events, or economic indicators, and makes clear that only federally regulated contract markets can apply.
It also makes it clear that its provisions do not extend to horse or dog racing, fantasy sports contests, or traditional sports wagering already authorized under Iowa law.
Hefty Permit Fee and Renewal Costs
The bill makes it illegal to operate a prediction market in Iowa without a state permit. Applicants must file electronically with the Department of Revenue and provide identifying information along with supporting documents.
The initial permit fee is set at $10 million, with annual renewals costing $100,000. Permits will expire each year on June 30, requiring operators to stay current with filings and payments to remain in business.
Prediction markets would also face a 20% tax on adjusted revenues. The figure is calculated by subtracting payouts to traders from total fees collected, then applying the percentage of activity tied to Iowa participants. SF 2085 will direct all proceeds into the state’s general fund.
Major Tax Changes
Under the proposal, winnings from event-driven contracts are treated as taxable income in Iowa. Operators must withhold state income tax on gains above $600, remitting the amounts directly to the Department of Revenue.
This will mean traders are automatically brought under both state and federal tax obligations, with prediction market operators serving as the collection point.
SF 2085 also adjusts how event-driven contracts are handled for state income tax purposes. Section 1256 of the federal tax code, which normally governs certain derivatives, will not apply in Iowa. Instead, taxpayers must recompute gains and losses from prediction market trades, adding back profits while limiting deductions for losses to 90 percent of gains.
If the bill becomes law, its rules will take effect retroactively from January 1, 2026, requiring both operators and players to calculate their obligations from the start of the year.
Iowa Pushing Hard on Gambling Regulations
Klimish’s bill will mark the state’s second major move on gambling this year. Alongside the push to regulate prediction markets, Iowa regulators are also seeking stronger powers to deal with unlicensed platforms that continue to target residents.
A separate measure that was already filed ahead of the 2026 session would give the Racing and Gaming Commission authority to issue cease‑and‑desist orders and pursue injunctions against operators running outside the state’s approval system.
At present, the commission’s reach is limited to the businesses it licenses, leaving it to rely on consumer warnings when unregulated platforms enter the market. Commission administrator Tina Eick has pressed lawmakers to act, stating, “When Iowans gamble on unlicensed platforms, they’re putting their money and their personal information at serious risk.”
