Introduction: The Rise of Staking and the Tax Questions It Brings
As the crypto world matures, more investors are turning to staking as a way to earn passive income, similar to earning interest on their savings. But as with all income, the IRS wants its
share. If you’re wondering, “Is staking income taxable?” or looking for practical advice on crypto staking taxes, you’re not alone.
This guide breaks down everything you need to know—from how staking works to how to report it on your taxes. Whether you’re staking ETH on a major exchange or participating in DeFi protocols, we’ve got you covered.
What Is Crypto Staking?
At its core, staking involves locking up your crypto to support the operation of a blockchain network (typically those using Proof of Stake). In return, you earn staking rewards—usually paid out in the same cryptocurrency.
Think of it as earning crypto dividends or interest. But unlike your bank account, the IRS treats staking rewards as taxable income the moment you receive them.
Are Staking Rewards Taxable?
✔️ Yes. Staking rewards are taxable as ordinary income.
According to current IRS guidelines, staking rewards are taxable when you gain “dominion and control”—that is, when you can access, sell, or transfer them.
Example:
You stake 2 ETH and earn 0.1 ETH as a reward. On the day you receive it, ETH is worth $3,000.
You must report $300 as ordinary income on that year’s tax return—even if you don’t sell it.
IRS Guidance on Crypto Staking (As of 2025)
While the IRS has issued clear guidance on mining rewards (IRS Notice 2014-21), staking guidance has been slower to evolve. However:
- The IRS currently treats staking rewards the same as mining income.
- Rewards are taxed at fair market value (FMV) on the date received.
- When you later sell or swap the staking rewards, you may also owe capital gains tax depending on how much they have appreciated.
Key Tax Events:
| Event | Taxable? | Type of Tax |
|---|---|---|
| Receiving staking rewards | ✅ Yes | Ordinary Income |
| Selling staking rewards later | ✅ Yes (if profit) | Capital Gains |
Recent Legal Developments: The Jarrett Case
In Jarrett v. United States (2022), a taxpayer argued that staking rewards shouldn’t be taxed until they are sold. The IRS offered a refund but never clarified its position in court, leaving the broader tax landscape unchanged.
What this means:
You still need to report staking rewards as income when received. Until the IRS or Congress issues updated guidance, this remains the standard.
How to Report Crypto Staking Rewards on Your Taxes
Here’s how to handle staking on your return:
1. Track the Fair Market Value on the Day Received
Use a crypto tax tool or your exchange statement to determine the value in USD when rewards hit your wallet.
2. Report as Miscellaneous or Business Income
- For casual investors: Schedule 1, Line 8z (Other Income)
- For active crypto traders or validators: Report on Schedule C (may allow expense deductions)
3. Report Future Gains/Losses When You Sell
You’ll pay capital gains tax based on the difference between the sale price and the value when you received it.
Tax Strategies for Crypto Stakers
Here are some practical tips to help reduce your crypto staking tax burden:
✅ Use a Crypto Tax Calculator
Platforms like CryptoTax.live simplify tracking staking rewards, income values, and capital gains.
✅ Harvest Losses to Offset Gains
If your crypto rewards drop in value after you receive them, selling at a loss can offset other gains and reduce taxes.
✅ Hold Long-Term for Lower Tax Rates
Sell staking rewards after one year to qualify for long-term capital gains, which are usually taxed at lower rates (0%, 15%, or 20%).
✅ Separate Personal vs. Business Use
If staking is part of a business (e.g., running a validator), you may deduct expenses like equipment, electricity, or hosting.
Differences Between Staking Rewards and Other Crypto Income
| Type of Crypto Income | When Taxed | Tax Type |
|---|---|---|
| Staking Rewards | When received | Ordinary Income |
| Airdrops | When received | Ordinary Income |
| Mining | When mined | Ordinary Income |
| Capital Gains | When sold | Capital Gains |
Common Staking Scenarios & Their Tax Treatment
🔹 Staking on Coinbase or Binance
These platforms automatically deposit rewards. You must report each deposit’s value in USD as income.
🔹 Using DeFi Staking Pools
Even if rewards accumulate but aren’t withdrawn, you may still owe tax if you can access or withdraw them.
🔹 Staking Locked Tokens (e.g., ETH 2.0 pre-withdrawal)
If you cannot access staking rewards, the tax may be deferred until withdrawal, but this depends on how your wallet or platform treats “control.”
Tools to Simplify Staking Tax Reporting
- CryptoTax.live – Crypto tax reporting tools with staking support
- Koinly, CoinTracker, ZenLedger – Automatically import staking data
- IRS Form 8949 & Schedule D – For capital gains from selling rewards
- IRS Schedule 1 – For reporting income from staking
Final Thoughts: Stay Informed and Stay Compliant
Crypto staking can be a rewarding way to earn passive income—but it also brings tax responsibilities. Understanding crypto staking taxes, tracking your income accurately, and planning ahead can help you avoid IRS trouble and maximize your crypto gains.
Disclaimer
This article is for informational purposes only and does not constitute legal or tax advice. Always consult a qualified tax professional to assess your specific situation.
FAQs: Crypto Staking Taxation
Q1. Is staking income taxable even if I don’t sell the crypto?
Yes. You’re taxed based on the value when you receive the staking reward, not when you sell it.
Q2. How do I calculate the fair market value of staking rewards?
Use your exchange statement or a crypto tax tool to find the USD value on the date the reward is credited.
Q3. Can I deduct expenses related to staking?
If you run a validator or staking business, yes—expenses like electricity, servers, and fees may be deductible.
Q4. Do I pay tax if my staking rewards lose value?
Yes, you still pay income tax on the value when received. But if you later sell at a loss, you can claim a capital loss.
Q5. Do I need to report staking on a hardware wallet?
Yes, if you’re receiving rewards you can control or access—even on cold wallets—you’re responsible for reporting them.
