Crypto Staking Taxes (2024 IRS Rules)
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In 2023, the IRS released guidance stating that the agency considers staking rewards to be income at the time of receipt. This means that crypto from staking is taxed as income for US taxpayers.
Staking crypto taxes vary internationally, with some countries having more lenient tax policies. US taxpayers typically report staking rewards as "Other Income" on Form 1040 Schedule 1 and capital gains on disposal with Form 1040 Schedule D.
What is crypto staking?
Staking involves crypto holders who participate in the validation of transactions on the blockchain. Staking helps to ensure the ledger is accurate and consistent. This verification process is carried out by computers on a given blockchain network, often facilitated by third-party staking services.
Staking provides a means of earning rewards while holding specific cryptocurrencies. If a cryptocurrency you possess supports staking—such as Ethereum, Tezos, Cosmos, Solana, Cardano, and others—you can "stake" a portion of your holdings and earn rewards.
Staked crypto generates rewards because it is actively utilized on the blockchain. Cryptocurrencies that allow staking employ a consensus mechanism called Proof of Stake, which ensures the verification and security of transactions without a bank or payment processor as an intermediary. By choosing to stake your crypto, you contribute to this process and receive rewards in return.
Compare: The best staking platforms
How is staking taxed?
In 2023, the IRS released guidance that staking rewards are considered income at the time of receipt. This means that for US taxpayers, crypto received from staking is taxed as income.
How are staking rewards taxed?
Staking rewards are typically taxable both as income when you receive and have dominion and control over the tokens, and then as capital gains upon disposal.
To determine your crypto staking taxes, you’ll need to report the fair market value of your staking rewards upon receipt or when you have dominion and control, which serves as your cost basis. If and when you sell your staking rewards, you’ll use this cost basis to calculate your corresponding capital gains or losses.
Are staking rewards taxed twice?
When you dispose of your crypto earned from staking, you’ll trigger a capital gains event for either a realized loss or gain. However, it’s important to clarify that you won’t be taxed on the same profits twice. You won’t pay any capital gains tax on the income you’ve already paid income tax on.
International taxpayers can refer to our helpful country guides for more information about crypto staking taxes in their region.
Latest IRS guidance on how to report crypto staking rewards on your taxes
In July of 2023, the IRS issued new guidance clarifying when staking rewards are subject to taxation as income.
“If a cash-method taxpayer stakes cryptocurrency native to a proof-of-stake blockchain and receives additional units of cryptocurrency as rewards when validation occurs, the fair market value of the validation rewards received is included in the taxpayer's gross income in the taxable year in which the taxpayer gains dominion and control over the validation rewards. The fair market value is determined as of the date and time the taxpayer gains dominion and control over the validation rewards. The same is true if a taxpayer stakes cryptocurrency native to a proof-of-stake blockchain."
What is ‘dominion and control’ and how it relates to staking taxes
The IRS defines “dominion and control” as the moment an investor controls and has the ability to sell, exchange, or otherwise dispose of crypto rewards.
As per Revenue Ruling 2023-14, cryptocurrency staking rewards are now categorized as gross income. Taxpayers are required to report these earnings in the year they were received. US taxpayers must include income generated through staking digital assets on proof-of-stake (PoS) blockchains in their annual tax filing.
There may be situations where staking rewards are not immediately taxable because an investor does not have “dominion and control.” For example, some platforms allowed users to stake their Ethereum but imposed restrictions on withdrawals until the completion of the Ethereum Merge in April of 2023. Some investors argued they did not have taxable income until they obtained “dominion and control” over their coins. This aligns with the new IRS guidance.
How to calculate staking rewards
Your staking rewards will vary depending on the amount staked and corresponding rates. The calculation is:
Daily Staking Rewards = (Principal + Accrued Staking Rewards so far) * ((1 + annualized Staking Rewards rate)^(1/365) - 1)
Staking rewards calculation example
You stake 1 ETH, with an annualized staking rate of 4%.
On day one, the staking rewards are calculated as follows: (1 ETH + 0 ETH) * ((1 + 0.04)^(1/365) - 1) = 0.00010959 ETH.
If you continue to stake both the principal amount and the earned staking rewards, your daily staking rewards will naturally increase over time. Staking reward rates may fluctuate while your funds are in the account due to blockchain conditions.
The fair market value of staking rewards
The fair market value of your staking rewards is typically the value of the rewards at the time of receipt. For example, if you earn 0.2 ETH a month from staking, you must identify the fair market value of 0.2 ETH in USD on each specific date you received ETH throughout the year.
If an investor receives staking rewards but is not able to immediately dispose of them, the fair market value of these rewards is determined when the investor has "dominion and control." We touch on the concept of dominion and control as it pertains to crypto staking taxes further later in this article.
Determining the fair market value of staking rewards can be complex and time-consuming. Cryptocurrency tax software like ours at TokenTax can assist in this matter, and if you have further questions about staking rewards, our expert team is available to help.
IRS forms to report crypto staking rewards on taxes
For individual US taxpayers, staking rewards can be reported as 'Other Income' on Form 1040 Schedule 1. Capital gains from the disposal of staking rewards are reported with Form 1040 Schedule D.
Businesses that earn staking rewards use Schedule C. It is typically possible to deduct any expenses associated with staking, as long as they are necessary for business operations.
How is DeFi staking taxed?
Taxation of DeFi crypto staking earnings can fall under either capital gains or income because staking income can be received in two forms: additional tokens or an appreciation in the value of existing tokens.
Some DeFi platforms distribute rewards or interest through deposits of additional coins into a lender’s wallet. These are taxed like wages or bank interest, as ordinary income.
Other DeFi platforms distribute tokens as an increase in the value of a lender’s interest-bearing tokens. These are taxed as capital gains because the number of tokens in the lender’s wallet does not increase. Instead, the existing tokens increase in value.
Explore more: DeFi Tax Guide.
How are staking pools taxed?
Staking rewards via staking pools are generally taxed as income upon receipt regardless of whether you choose to immediately withdraw them because you possess "dominion and control" over your coins as soon as you have the ability to withdraw them.
Alternatively, depositing and withdrawing cryptocurrency from a staking pool is unlikely to be classified as a taxable event, similar to other transfers between wallets.
When to recognize income from staking rewards
The IRS categorizes staking rewards as gross income, which taxpayers must report the year they were received in their annual tax filing. The fair market value of staking rewards is determined as of the date and time the taxpayer gains dominion and control over the rewards, which is typically but not always upon receipt.
Crypto staking tax outside the US
Crypto taxes vary widely across the globe. Some countries notably offer more lenient policies and can be considered crypto tax-free jurisdictions. Each country and territory has its own set of variables and regulations pertaining to crypto taxation, including crypto staking tax.
How is crypto staking taxed in Australia?
In Australia, cryptocurrency staking rewards are taxed similarly to how crypto is taxed in the US. Staking rewards are taxed as income upon receipt and as capital gains upon disposal.
How is crypto staking taxed in Canada?
The CRA hasn’t released official guidance on how crypto staking is taxed in Canada. Probably, staking rewards will be taxed as business income since they were acquired with the intention of making a profit.
How is crypto staking taxed in the UK?
Guidance from the HRMC states that staking rewards are viewed as income upon receipt. When you dispose of your staking rewards, you’ll receive capital gain or loss considering the change in value of your crypto since you originally received it.
How TokenTax can help with your crypto staking taxes
At TokenTax, we understand the complexities and challenges involved in cryptocurrency tax filings and crypto staking tax. That's why we offer a wide range of services to make the process seamless and hassle-free for individuals and businesses alike. With our crypto tax calculator and full-service accounting firm, you can rest assured that we have everything you need to file your crypto taxes accurately this and every year.
Our data import functionality is designed to simplify the process for you. By seamlessly syncing with your wallets and accounts, we eliminate the need for manual data entry. With all your cryptocurrency data conveniently available in one centralized platform, you can easily view and analyze your holdings and any tax consequences from staking and other crypto activity. Our team is available to help identify and rectify any errors or missing data, ensuring your crypto tax calculations are precise.
Crypto staking taxes FAQs
Here are answers to frequently asked questions about crypto staking taxes, how to report staking rewards on taxes, and how to report crypto staking rewards on taxes.
Do you pay tax on crypto staking?
Yes, taxes apply to crypto staking. In 2023, the IRS clarified that staking rewards are considered income upon receipt, which subjects US taxpayers to income tax on crypto received from staking. Additionally, when you sell or dispose of staking rewards, capital gains taxes typically come into play.
The fair market value of staking rewards must be reported upon receipt, establishing the basis for potential capital gains calculations upon sale. Consult with a crypto tax professional for more clarity in your specific circumstances.
What is the IRS rule on staking crypto?
As of July 2023, the IRS rule on staking crypto deems staking rewards as income at the time of receipt. If a taxpayer stakes cryptocurrency on a proof-of-stake blockchain and gains additional units as rewards, the fair market value of these rewards is included in the taxpayer's gross income for the taxable year when dominion and control over the rewards are obtained.
"Dominion and control" refers to the moment an investor can sell, exchange, or dispose of crypto rewards. Adhering to these IRS guidelines is crucial for accurately reporting staking rewards on taxes.
Do I have to pay tax if I sell my staking rewards?
For US taxpayers, yes, typically staking rewards are taxed as income upon receipt and then again as capital gains upon disposal.
Is staking equipment tax deductible?
This depends on where you pay taxes. Typically, individual taxpayers are unable to deduct staking equipment costs. However, if you have acquired validator equipment for business purposes, you may be able to deduct staking equipment costs as a business expense.
Which IRS form do I report staking rewards on?
US-based, self-employed taxpayers use Schedule C. Employees drawing a salary report income from staking rewards as "other income" on Form 1040 Schedule 1.
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