Crypto Interest Tax: IRS Guidelines 2026

Lending desks and exchange “savings” accounts pay extra tokens for keeping your crypto with them. While that might look like a growing bank balance, it is not tax-free. Crypto interest tax works on a simple rule: the tokens are ordinary income when you receive them, at their dollar value that day, even if you never sell.

TokenTax prices each credit at that timestamp so the income report and a later Form 8949 use the same basis.

“Crypto interest” is a catch-all for yield paid in tokens, usually from lending desks or savings-style accounts. Some platforms also stamp other rewards as “interest” even when the activity is not bank interest.

If the platform credits you tokens you can use, it qualifies. For US reporting, those payouts are ordinary income at fair market value when you receive them and can control them. Sell or swap later, and you have a capital gain or loss on the change after that date. TokenTax classifies those credits as income instead of leaving them as unlabeled transfers.

Yes. Each time a platform credits you tokens you can use, you have ordinary income equal to the USD value at that moment. It does not matter if you leave them on the same platform, and it does not matter if the amount is small.

The IRS treats digital assets as property. There is no crypto-interest ruling that names every lending desk. The timing matches mining and staking: fair market value when you have dominion and control. 

Import the wallet or exchange into TokenTax, and that timestamp is what gets priced, not the night you sit down to file.

Crypto interest is taxed at your marginal ordinary income rate, the same brackets that apply to wages. It is not a long-term capital-gains rate. Capital-gains rates only apply later, if you dispose of the interest tokens and their price has moved. 

See the current tax rates for cryptocurrency.

• Lending platforms: You deposit USDC or another coin with a desk that pays yield. On-chain, that is often Aave or Compound. On an exchange, it can be a product like Coinbase’s USDC lending vaults.

• Crypto savings and earn accounts: Coinbase, Kraken, and similar venues run savings-style programs (USDC rewards, earn, or “interest” tabs). The marketing says interest. The tax result remains ordinary income upon receipt.

• Yield-bearing products: Protocols credit aTokens, similar yield tokens, or a rising claim on the pool. Those credits rarely come with a 1099. A 2024 Treasury rule would have pulled DeFi front ends into the broker definition, but Congress repealed it in early 2025, which left noncustodial platforms outside the 1099-DA reporting. That means no form is coming. Connect the wallet in TokenTax so that the credits still appear in the income report. 

• Staking: Platforms often lump staking with interest. It is a different activity. Rewards are still income when you control them. Read crypto staking taxes for the staking-specific facts.

• Recognition: The day and time you can transfer, sell, or otherwise dispose of the tokens.

• Valuation: Spot price in US dollars at that timestamp, not a monthly average.

• Reporting: Add every payout for the year and report the total as ordinary income.

• Later disposal: Any sale, swap, or spend of those tokens is a separate capital-gains event on Form 8949.

No. You are not taxed twice on the same dollars if basis is tracked. Income tax is applied to the value at receipt. Capital gain or loss only hits the change after that.

Example. You earn $300 of lending tokens and can move them that day. You report $300 of ordinary income. Basis in those tokens is $300. Months later, they are worth $375, and you sell. You have a $75 capital gain, not another $375 of income. If you skipped the $300 on the return, the sale can look like $375 of gain. That is the double-counting. 

TokenTax records the $300 as income and as basis, so the sale is only the delta.

How two events are taxed

Token yield rises, then you sell. An earn account credits you 0.05 ETH on June 1 when ETH is $3,000. That is $150 of ordinary income. Basis is $150. You sell the 0.05 ETH on December 10 when ETH is $3,400. Proceeds are $170. Capital gain is $20. The $150 never gets taxed again as income.

If you are in the 22% ordinary bracket, the June credit will cost about $33 in federal income tax (22% of $150). The December $20 gain is short-term if you held the lot for one year or less, so it is taxed at ordinary rates. 

TokenTax keeps the two events on different reports: income first, 8949 second.

• Collect the data. Connect every wallet and exchange in TokenTax, or export statements showing each payout, including micro-credits.

• Convert to USD. Price every credit at the receipt timestamp.

• Sum the year. One ordinary-income total.

• Enter it on the right line. Which line depends on the form you received, or didn't.

• Keep the CSVs. That file is what you have if the IRS asks.

• Form 1099-INT. If a platform reports the payout as interest, it is reported on Form 1040, line 2b. Add Schedule B only if your total taxable interest for the year tops $1,500.

• Form 1099-MISC. Rewards and similar payouts. For 2025 payments, many payers still used a $600 floor. For 2026 payments, the usual 1099-MISC and 1099-NEC floor is $2,000. You still report income below those floors.

• Schedule 1 (Form 1040). Most token yield with no 1099-INT goes here as other income, unless the activity is a trade or business.

• Schedule C (and Schedule SE, if applicable). Use these only if the lending or earn activity is a trade or business.

• Form 8949 and Schedule D. Later sale, swap, or spend of the reward tokens. Basis is the income amount from the credit.

• Form 1099-DA. Covers broker sales, not your interest credits. Never use it as your yield total. For 2025, it shows only gross proceeds, with basis added starting in 2026.

If a 1099-INT, 1099-MISC, and your own ledger disagree, the ledger is still the return. The form is what the IRS already has. TokenTax is built to match those PDFs to the wallet history so you are not typing one number from a form and another from a CSV.

• A self-directed IRA can hold some crypto. Income inside a qualifying account can grow tax-deferred or tax-free. The account rules are strict. Confirm the custodian and the activity before you treat yield as sheltered.

• Harvest capital losses to offset capital gains. If losses exceed gains, you can generally deduct up to $3,000 of net capital loss against other income, with the rest carried forward.

• Time sales of interest tokens for a year when your ordinary income is lower, if that is actually in your control.

Skipping the 1099 is not a reduction method. Harvesting only works if the lots are already on the books. TokenTax keeps those lots so a later sale can actually offset. See how to reduce your crypto taxes.

• Ignoring micro-payouts that add up over the year.

• Mixing interest income with capital gains on the same worksheet.

• Using a monthly average price instead of the price at receipt. TokenTax prices the credit at the timestamp, not at year-end.

• Assuming the 1099-DA basis box is right for tokens you transferred in.

• Forgetting to reconcile any 1099-INT or 1099-MISC with your own ledger.

Unreported yield is unreported income. Filing late costs 5% of the unpaid tax per month, capped at 25%. Paying late costs 0.5% per month, also capped at 25%. If the IRS catches the underreporting later, an accuracy-related penalty adds 20% of the underpayment, and interest accrues on the entire amount.

See what happens if you don’t file your crypto taxes.