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Key Takeaways
- Crypto staking rewards are subject to income tax upon receipt and capital gains upon disposal.
- Staking rewards should be reported as crypto income on Form 1040.
If you earned staking rewards this year, you owe money to the IRS.
In this guide, weâll break down everything you need to know about how staking rewards are taxed. Weâll answer a few commonly asked questions about staking taxes and show you how you can report your staking income on your tax return in minutes.Â
What is staking?Â
Staking typically refers to participating in a Proof of Stake (PoS) blockchainâs governance process.Â
In a PoS blockchain, cryptocurrency stakers temporarily lock their cryptocurrency to help validate transactions and maintain the security of the blockchain. In return, stakers receive cryptocurrency rewards â allowing them to earn a passive income!Â
Staking can also refer to earning rewards from your cryptocurrency on a DeFi protocol. Certain protocols will give you rewards for adding liquidity to the platform.
How is staking taxed?Â
In 2023, the IRS released guidance that stated that staking rewards are considered income at the time of receipt.
If you dispose of your cryptocurrency rewards in the future, youâll incur a capital gain or loss depending on how the price of your staking rewards changed since you originally received it.Â
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When should I recognize income from my staking rewards?Â
As discussed earlier, staking rewards are recognized as income based on the fair market value of your crypto at the time of receipt. However, it can be unclear when âtime of receiptâ takes place in certain situations.Â
For example, many investors who earn staking rewards are unsure whether they should recognize income when the rewards are earned or when they withdraw their rewards into a personal wallet.Â
To better understand when staking rewards are considered taxable, itâs important to understand the concept of âdominion and controlâ (as described below).
What is âdominion and controlâ and how does it relate to staking taxes?Â
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Staking rewards are considered âreceivedâ when investors have dominion and control over their coins and can freely sell and trade them.Â
Investors have âdominion and controlâ as soon as they have the ability to withdraw their staking rewards. In this case, the rewards may be considered âconstructivelyâ received. In other words, youâll recognize income regardless if the coins are in your personal wallet or are in the hands of a third-party as long as you have the ability to withdraw them.
Are there any situations where staking rewards are non-taxable?Â
In cases where rewards cannot be withdrawn, itâs reasonable to take the position that your staking rewards are non-taxable.Â
For example, some platforms gave users the ability to stake their Ethereum but restricted withdrawals until the Ethereum Merge was completed. In cases like these, you would recognize income only when you have âdominion and controlâ over your coins â in other words, when you have the ability to freely withdraw your crypto.Â
How is DeFi staking taxed?
In most cases, DeFi staking income is subject to income tax.Â
However, some DeFi staking protocols leverage crypto-to-crypto swaps to allow users to stake/unstake crypto. Itâs possible that these transactions may be subject to capital gains tax, like other crypto-to-crypto swaps.Â
For more information, check out our guide to DeFi taxes.Â
Are staking rewards taxed twice?
If you dispose of your staking rewards in the future, your gains will be subject to capital gains tax.
You may be required to pay income tax on your crypto upon receipt and capital gains tax upon disposal. However, itâs important to note that you wonât be taxed on the same profits twice.Â
When you dispose of cryptocurrency, you will incur a capital gain or loss based on how the price of your staking rewards has changed since you originally received them. Technically, you wonât pay capital gains tax on the same income.
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What are staking pools?Â
A staking pool allows investors to pool together their staked crypto. By combining their resources, investors can have a larger collective stake and increase the chance that theyâll be selected as a validator and earn staking rewards.Â
Typically, pool operators will charge a fee or take a percentage of the staking rewards as compensation for their services. The operator manages the technical aspects of staking, such as maintaining the necessary infrastructure, ensuring uptime, and handling software updates.Â
How are staking pools taxed?Â
Earning staking rewards through a staking pool should be considered income at receipt, even if you do not withdraw your rewards. As stated earlier, you have âdominion and controlâ over your coins as long as you have the ability to withdraw them.
Depositing and withdrawing your cryptocurrency from a staking pool is likely not considered a taxable event, just like other wallet-to-wallet transfers.Â
What if I canât determine the fair market value of my staking rewards?Â
Not sure what the fair market value of your staking rewards were at the time of receipt? You may have trouble reporting your taxes.Â
The exact time when you received your staking rewards may not be visible on the blockchain. If you find yourself in this situation, you can reach out to your tax professional to determine a reasonable method to report your staking income.Â
Cryptocurrency tax software like CoinLedger can help. The platformâs historical price engine can help you determine the fair market value of your staking rewards over time.Â
Can I deduct staking equipment?Â
If youâve bought your own validator equipment as part of a trade or business, you can write off the costs as an expense. This deduction is not available for individual taxpayers.
How to report staking rewards on your tax returnÂ
Individual taxpayers can report their staking rewards as âOther Incomeâ on Form 1040 Schedule 1.
Businesses that earn staking rewards as part of their trade can report their income on Schedule C. Any expenses related to staking can be written off (provided they can be proven and they are a necessary part of business operations).
How does the Tezos court case impact staking taxes?Â
In December 2021, the IRS offered to refund Joshua and Jessica Jarrett for taxes paid on their staking income from the Tezos blockchain. Many investors wrongfully believed that this meant that staking rewards would not be taxed as income.Â
At the time, the IRS had not yet issued guidance on how staking is taxed. According to legal experts, the IRS offered a refund in this specific case to settle the matter without incurring legal costs and issuing definitive guidance.Â
As of 2024, the IRS is clear in its guidance that staking rewards are considered income at the time of receipt.Â
How is crypto staking taxed in Australia?
In Australia, cryptocurrency staking rewards are taxed similarly to the United States. Staking rewards are taxed as income upon receipt and as capital gains upon disposal.Â
How is crypto staking taxed in Canada?Â
The CRA hasnât released official guidance on how cryptocurrency staking is taxed in Canada. Itâs likely that in most cases, staking rewards will be taxed as business income â because they were acquired with the intention of making a profit.Â
How is crypto staking taxed in the UK?Â
The HRMC treats staking rewards as income upon receipt. When you dispose of your staking rewards, youâll incur a capital gain or loss depending on how the value of your crypto changed since you originally received it.Â
How CoinLedger can helpÂ
Trying to manually calculate your tax liability can be challenging. CoinLedger can simplify the process.Â
All you have to do is upload your staking rewards and other crypto transactions into the CoinLedger platform. Once youâre done, youâll be able to generate a complete capital gains & income tax report with the click of a button.Â
Frequently asked questions
- Do you have to claim staking rewards on taxes?
- Are unsold staking rewards taxable?
- Do I pay taxes on staked Ethereum?
- Is there capital gains tax on staking?
- Is Coinbase staking taxable?
- Can I deduct staking equipment on taxes?
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How we reviewed this article
All CoinLedger articles go through a rigorous review process before publication. Learn more about the CoinLedger Editorial Process.
CoinLedger has strict sourcing guidelines for our content. Our content is based on direct interviews with tax experts, guidance from tax agencies, and articles from reputable news outlets.
- IRS Revenue Ruling 2023-14 (2023) https://www.irs.gov/pub/irs-utl/rev-ruling-2023-14.pdf
- Cryptoassets: How should proof-of-stake rewards be taxed? (2022) https://www.thetaxadviser.com/issues/2022/apr/cryptoassets-proof-of-stake-rewards-taxed.html
- Phantom Income and the Taxation of New Cryptocurrency Tokens (2023) https://www.taxnotes.com/featured-analysis/phantom-income-and-taxation-new-cryptocurrency-tokens/2023/01/27/7fv8n
- How taxes on cryptocurrencies and digital assets will soon take shape (2022) https://www.ey.com/en_us/tax/how-taxes-on-cryptocurrencies-and-digital-assets-will-soon-take-shape
