Staking Rewards Tax Treatment: What You Owe and When to Pay

When you earn staking rewards from crypto like Ethereum, Solana, or Cardano, the IRS doesn’t see it as a gift or a bonus. It sees it as income. And that means you owe taxes on it - right when you get it, not when you sell it.

Staking Rewards Are Taxable Income When You Receive Them

The IRS made this crystal clear in July 2023 with Revenue Ruling 2023-14. If you’re staking crypto and you get new tokens as rewards, you must report those as ordinary income on your tax return. The moment you have control over those rewards - meaning you can move, sell, or transfer them - that’s when the tax event happens.

It doesn’t matter if you’re staking directly on a blockchain node or through a centralized exchange like Coinbase or Binance. If you got the tokens in your wallet, you owe tax. The amount you report is the U.S. dollar value of those tokens on the exact day you received them.

Let’s say you earned 0.15 ETH on March 12, 2025, and ETH was trading at $3,200 that day. You report $480 in income. On April 5, you earned another 0.15 ETH, but this time ETH was at $3,500. That’s another $525 in income. You add both to your total income for the year. No exceptions. No deferrals. Even if you never sell those ETH, you still owe tax on the rewards you received.

Double Taxation: Income Tax Now, Capital Gains Later

Staking rewards get taxed twice - and that trips up most people.

First, you pay ordinary income tax on the value of the rewards when you receive them. That tax rate depends on your total income and filing status - it could be 10%, 22%, 35%, or even 37% for high earners.

Then, when you eventually sell or trade those staking rewards, you pay capital gains tax on any increase in value since you received them. If you sold that 0.15 ETH you got on March 12 for $3,800 per ETH, your gain is $90 ($3,800 - $3,200 = $600 per ETH × 0.15). That $90 is a capital gain.

Here’s the catch: if you held the rewards for less than a year, it’s a short-term capital gain - taxed at your regular income rate. If you held it over a year, it’s long-term, which usually means a lower rate (0%, 15%, or 20%). But either way, you pay again.

Are You a Hobbyist or a Business?

Most people staking crypto are doing it as a side activity. That’s fine - but the IRS cares about how you report it.

If you’re just staking a few tokens here and there, you report your rewards as "Other Income" on Line 8 of Schedule 1 of your Form 1040. Simple. No extra forms.

But if you’re staking at scale - running multiple nodes, spending thousands on hardware, dedicating full-time hours, or actively marketing your staking service - the IRS may classify you as a business. That means you file Schedule C. You report your staking income as business revenue, and you can deduct expenses like electricity, mining rigs, software subscriptions, or even a portion of your internet bill.

But here’s the trade-off: if you’re classified as a business, you also owe self-employment tax - 15.3% on your net profit. That’s Social Security and Medicare. So if you made $10,000 in staking income as a business, you’d owe about $1,530 in self-employment tax on top of income tax. If you’re just a hobbyist, you skip that.

There’s no official dollar threshold. The IRS looks at your behavior: Do you keep detailed records? Do you operate like a business? Do you have a profit motive? If yes, you’re likely a business. If you’re just holding ETH and letting a wallet auto-stake it, you’re probably not.

Exchanges Are Reporting to the IRS - Don’t Ignore Form 1099-MISC

If you stake through Coinbase, Kraken, or Binance, you might get a Form 1099-MISC at the end of the year. This form lists your staking rewards as "Other Income" - usually in Box 3.

Here’s the scary part: the IRS gets a copy of this form too. If you don’t report those rewards on your tax return, you’re creating a mismatch. That’s a red flag. Tax professionals who’ve helped over 1,000 crypto taxpayers say: if you get a 1099-MISC for staking and you don’t report it, you’re asking for an audit.

Even if the exchange doesn’t send you a 1099, you still owe tax. Some platforms don’t report yet, or they only report above certain thresholds. But the IRS doesn’t care. You’re legally required to report all income - even if no form comes your way.

Record-Keeping Is Non-Negotiable

You can’t guess your staking income. You need exact numbers.

For every staking reward you receive, you must track:

• The exact date and time you received the tokens
• The amount of crypto received
• The fair market value in USD on that exact date and time
• Where the reward came from (exchange, self-staking, validator, etc.)

That’s a lot of data - especially if you’re staking daily or weekly. A single year of staking could mean 50+ entries. Manually tracking this is a nightmare. That’s why tools like Blockpit, Koinly, or TokenTax exist. They connect to your wallets and exchanges, pull your transaction history, and auto-calculate your staking income and capital gains.

Don’t rely on exchange summaries. They often lump multiple rewards into one line. They might not even include rewards from direct staking on Ethereum’s beacon chain. You need wallet-level data.

The Big Legal Challenge: Jarrett v. United States

Not everyone agrees with the IRS’s stance. A case called Jarrett v. United States is currently being reviewed by the Sixth Circuit Court of Appeals.

The taxpayer argues that staking rewards are like mining - you’re not getting paid for work, you’re extracting value from the blockchain itself. Just like a miner doesn’t owe tax on gold until they sell it, he says stakers shouldn’t owe tax until they sell their rewards.

If the court sides with Jarrett, it could change everything. Staking rewards might be treated as self-created property, taxed only at sale. That would be a huge win for stakers - but don’t count on it. The IRS has a strong position, and this case is far from over.

Until then, the current rule stands: pay tax when you receive the reward.

What About International Staking?

If you’re a U.S. taxpayer living abroad or staking on non-U.S. platforms, you still owe U.S. taxes. The IRS taxes worldwide income. Your location doesn’t matter.

Other countries handle staking differently. Canada taxes staking rewards as income when received. The UK treats them as miscellaneous income. Germany has a one-year tax-free holding period for crypto, which includes staking rewards. But if you’re a U.S. citizen or resident, you’re stuck with IRS rules - no matter where you live or where you stake.

What Should You Do Now?

1. Track every reward - date, amount, value in USD. Use a crypto tax tool if you have more than a few rewards.

2. Classify yourself correctly - hobbyist (Schedule 1) or business (Schedule C)? Be honest. Don’t try to dodge self-employment tax if you’re running a real operation.

3. Don’t ignore 1099s - if you get one, report the income. Even if you think it’s wrong, report it and explain it on your return.

4. Plan for cash flow - you might owe thousands in taxes on crypto you haven’t sold. Set aside money for tax season.

5. Stay updated - the IRS could issue new guidance, or a court could change the rules. Follow reputable crypto tax sources.

Staking rewards aren’t free money. They’re taxable income with complex rules. The IRS is watching. The penalties for underreporting can be steep - up to 25% of the underpaid tax, plus interest. But with good records and the right approach, you can stay compliant without stress.