This surprises traders who assume payouts are capital gains. In most retail prop and funded-account models you are not trading your own capital and the payment is a performance fee for services, not a gain on property, so it lands as ordinary business income.
Self-employment tax applies in addition to income tax, at a combined rate on net earnings with a wage base cap on the Social Security portion and no cap on Medicare, softened by the deduction for half of it. Related business expenses, evaluation fees and reset fees among them, generally reduce net earnings.
Foreign-based prop firms often issue no US form at all, which does not remove the obligation to report. The characterisation also differs where the arrangement genuinely makes you a partner or member sharing in trading profits.
This is general information for the United States, not tax advice. Rules change and depend on your circumstances and on your firm's actual contract; take professional advice.
Related: form-1099-nec, prop-firm, payout-split, schedule-c-trading-business, estimated-quarterly-taxes