The 60/40 rule and prop firm payouts

Updated October 26, 2026 · For the 2026 tax year

If you trade futures, you've probably heard that futures get special tax treatment: "60/40". It's real, but it's for futures contracts you trade in your own account. Prop firm payouts are something else.

What the 60/40 rule is

Futures and certain other contracts are "Section 1256 contracts". Gains and losses on them are reported on IRS Form 6781 and treated as 60% long-term and 40% short-term capital gain or loss, no matter how long you held the position. Open positions are marked to market at the end of the year. Because long-term rates are lower, the blended rate is often lower than ordinary income rates.

Why payouts are generally different

In a funded account you trade the firm's capital, not your own. The firm pays you a share of the profits for that service, usually as an independent contractor, and typically reports it on a Form 1099-NEC as nonemployee compensation. You don't own the futures contracts and you don't report their gains or losses; you report the payout. So the payout is generally self-employment income, taxed at your ordinary rates plus self-employment tax, not 60/40.

When 60/40 does apply to you

If you also trade futures in your own brokerage account, those trades are reported separately, on Form 6781 with your broker's 1099-B, and the 60/40 split can apply to them. Your prop firm payouts and your own-account futures gains are two different kinds of income on the same return.

What this means for your set-aside

• Plan your payout set-aside at your ordinary bracket plus self-employment tax. Don't assume a lower 60/40 blended rate.
• Your trading costs (evaluations, resets, data) are generally deducted against payout income, not on Form 6781. See deducting evaluation fees.
• If your situation is unusual (a firm that pays you differently, an entity, your own account too), this is exactly the question to take to a CPA.

Sources

• IRS, About Form 6781: gains and losses on Section 1256 contracts under the mark-to-market rules
• IRS, Form 6781 (2025), lines 8 and 9: multiply the net Section 1256 gain or loss by 40% (short-term) and 60% (long-term)
• IRS, Instructions for Forms 1099-MISC and 1099-NEC: nonemployee compensation

General information, not tax advice. This guide explains common rules for US funded traders; your situation may differ. It isn't a substitute for a licensed CPA or IRS enrolled agent, so review your own numbers with one before you file or pay.