Ethereum 2.0 Taxes: How ETH Staking Rewards Are Taxed in the US (2026)

The Merge transitioned Ethereum from proof of work to proof of stake. The upgrade is widely called Ethereum 2.0, though the Ethereum Foundation retired that name in January 2022 in favor of "consensus layer." The Merge did not change anyone's ETH balance, alter smart contracts, or rewrite transaction history, so holding ETH through it was not a taxable event.

According to the Ethereum Foundation, switching from mining to staking reduced network energy use by roughly 99.95%.

The tax questions come from staking, not from the Merge itself. Once you stake ETH, you start receiving rewards, and those rewards are income when you can control them.

The Merge finalized on September 15, 2022, at roughly 06:42 UTC, when the network hit its preset terminal total difficulty. Nobody had to swap tokens or take any action. Wallet balances and smart contracts continued to work throughout the transition.

Two other dates matter for taxes:

• The Beacon Chain launched in December 2020 and began tracking validator balances.

• The Shanghai and Capella upgrades went live on April 12, 2023, and enabled withdrawals of staked principal and accrued rewards.

For US taxpayers, holding ETH through the Merge created neither income nor a disposal. You did not receive a new asset, nor did you sell or exchange anything. The IRS has not issued a ruling treating a consensus change as a taxable event, and in practice the change works like a software upgrade that leaves your property where it was.

Your cost basis and holding period carried through the Merge unchanged. If you bought ETH in 2021 and still held it in 2023, your holding period runs from the 2021 purchase, not from September 2022.

Staking rewards are the separate issue. Under Revenue Ruling 2023-14, rewards are ordinary income in the year you gain dominion and control over them, which usually means the moment you can sell, transfer, or restake them.

Proof of stake replaces miners with validators who lock ETH to propose and attest to blocks. A solo validator stakes 32 ETH. Most people stake far less than that through an exchange, a staking pool, or a liquid staking protocol.

Liquid staking services issue a receipt token that represents your deposit and can be traded or used in DeFi. Rewards vary with network conditions and validator performance, and they accrue to the validator or pool over time.

Staking ETH can create up to three separate tax events, and which ones apply depends on how you stake.

1. Locking your ETH. Staking ETH, either natively or through a pool, is not a taxable event in itself. You still own the same property, and you have not sold or exchanged it. Nothing to report at this step.

2. Receiving rewards. Rewards are ordinary income at their fair market value on the day you gain dominion and control. For exchange staking, that is normally the day the platform credits your account and you can dispose of the reward. For native staking, it is when the protocol credits rewards you can withdraw or transfer. Report the income on Schedule 1 unless your staking rises to the level of a trade or business. The dollar value you report also becomes your cost basis in those reward coins.

3. Receiving a liquid staking token. If your staking method hands you a different token, such as cbETH or stETH, you have exchanged one property for another. Most practitioners treat that as a taxable disposal of the ETH you gave up.

How rewards reach you also changes the timing. cbETH accrues value against ETH without changing your token count, so rewards show up as appreciation rather than as new units. stETH rebases, meaning your balance grows daily, and the conservative position treats each rebase as a small income event with its own basis lot. A year of holding stETH can produce hundreds of separate income entries.

That volume is why recordkeeping matters more here than almost anywhere else in crypto tax. For each reward, you need the date, the quantity, and the US dollar value at the time you gained control. Reconstructing a year of daily rebases after the fact is far harder than capturing them in real time.

Later, when you sell the ETH or the reward coins, you report capital gain or loss on Form 8949, measured against the basis you established when you recognized the income.

Your entity structure changes which tax return the staking income lands on and what you can deduct against it. It does not change when the income arises. Rewards are still ordinary income at fair market value when you gain dominion and control, whether you hold ETH personally or through a business.

Where the income goes depends on how you're organized:

• Individual investor. Report rewards as other income on Schedule 1. No self-employment tax applies.

• Sole proprietor whose staking is a trade or business. Report on Schedule C, where ordinary and necessary business expenses are deductible. Self-employment tax applies to the net profit.

• Partnership or multi-member LLC. Report on Form 1065. The income passes through to partners on Schedule K-1.

• S corporation. Report on Form 1120-S, passing through to shareholders on Schedule K-1.

• C corporation. Report on Form 1120 and pay the flat 21% federal corporate rate. Distributions to shareholders are then taxed again at the shareholder level.

The deduction question is where the difference is most significant. Investors used to deduct investment expenses as miscellaneous itemized deductions. The Tax Cuts and Jobs Act suspended that category, and the One Big Beautiful Bill Act made the elimination permanent. An individual staking ETH as an investment can no longer deduct hardware, node hosting, or software costs. The same expenses are ordinary business deductions for a taxpayer whose staking rises to the level of a trade or business.

There is no bright-line test for when staking becomes a trade or business. The determination turns on regularity, continuity, and a genuine profit motive. Delegating ETH to a pool and collecting yield rarely clears that bar on its own. Running validator infrastructure at scale, with real operating costs and sustained activity, is a stronger case.

The gap between those two positions is worth reviewing with a tax professional before you file.

The Merge required no token swap and distributed no new coin on the main Ethereum chain. Long-term holders generally had nothing to report from the Merge alone.

The exception is the minority chain. If you received ETHW from the separate EthereumPoW chain and you could access it, US rules for hard forks and airdrops apply. Under Revenue Ruling 2019-24, the fair market value of the new coin when you can control it is ordinary income, and that value becomes your basis for any later sale.

Coinbase's cbETH is a liquid staking token representing staked ETH plus accrued rewards. Exchanging ETH for cbETH, or exchanging staked ETH for any liquid token, is commonly treated as a crypto-to-crypto exchange.

The IRS has treated crypto as property since Notice 2014-21, so many taxpayers and preparers take the conservative view that a wrap or swap is taxable. On that treatment, the value of the cbETH you receive is your amount realized on the ETH you gave up, and it becomes your basis in the cbETH. Report the disposal, and any later sale or redemption, on Form 8949.

The Ethereum mainnet did not split into two assets for ordinary users at the Merge. A separate group continued a proof-of-work chain called EthereumPoW, whose coin trades as ETHW on some platforms.

If an exchange credited you with ETHW and you could sell or transfer it, US rules treat the value at that moment as ordinary income. If you never received ETHW, or you received it but could not access it, you generally have nothing to report.

Shanghai and Capella introduced withdrawals in April 2023, allowing stakers to take out both rewards and validator principal. Withdrawing your own principal is not itself a taxable event, since you are moving property you already owned. Withdrawing rewards you have already recognized as income is not a second income event either.

Liquid staking grew after the upgrade because it lets you hold a transferable token while still earning network yield. Later Ethereum upgrades have focused on throughput and fees for layer 2 rollups.

None of that changed the tax mechanics. ETH staking rewards after the Merge are still ordinary income when you gain control of them, and later sales are still capital gains or losses on Form 8949. 

Gas paid on staking transactions is a separate question covered in our guide to Ethereum gas fees.