IRS Crypto Staking: Tax Rules, Reporting, and What You Must Know
When you earn rewards from crypto staking, the process of locking up cryptocurrency to support a blockchain network and earn rewards in return. Also known as proof-of-stake income, it's not free money—it's taxable income under U.S. law. The IRS doesn't care if you're staking Bitcoin, Ethereum, or a small altcoin. If you got rewarded, they want to know about it.
Staking rewards are treated as ordinary income, taxable at the fair market value of the crypto when you receive it. That means if you staked 1 ETH and got 0.02 ETH as a reward when ETH was worth $3,000, you owe taxes on $60. Not when you sell it—when you get it. Many people miss this. They think they only pay tax when cashing out, but the IRS sees staking like getting paid in cash—except it’s in crypto. And just like a paycheck, you need to report it.
What about exchanges that handle staking for you? Platforms like Coinbase, Kraken, or Binance US still report your rewards to the IRS. Even if you didn’t get a 1099, the IRS knows. They’ve been getting data from major exchanges since 2020. If you didn’t report staking income and got audited, you’re looking at penalties, interest, and maybe even criminal charges. This isn’t theoretical. In 2023, the IRS sent out over 15,000 letters to crypto users who didn’t report staking or mining income.
There’s also the issue of crypto-to-crypto trades, when you swap your staking rewards for another coin. That’s a taxable event too. Even if you didn’t convert to USD, trading your staked ETH for SOL triggers capital gains tax. The IRS treats every swap as a sale. So you’re paying income tax on the reward when you get it, then capital gains tax when you trade it. Double taxation? Yes. That’s how it works.
Some try to argue that staking rewards are like interest from a bank account. But the IRS doesn’t agree. They’ve made it clear: crypto rewards are property income, not interest. You can’t just lump them into a 1099-INT box. You need to track each reward’s date, amount, and USD value at receipt. Spreadsheets work. Crypto tax software like Koinly or CoinTracker works better. But doing nothing? That’s how audits start.
You’ll find posts below that cover related topics—like how crypto exchanges report to the IRS, what happens if you don’t file, and how other countries handle staking taxes. Some talk about privacy coins and where staking is banned. Others explain how platforms like ApeSwap or Swappi handle rewards. But none of that matters if you don’t get the IRS rules right first. You can’t optimize your staking strategy if you’re going to get hit with a tax bill you didn’t see coming.
Whether you’re staking on a big exchange or running your own validator, the IRS doesn’t care about your setup. They care about your income. And if you’re earning crypto rewards, you’re earning taxable income. The question isn’t whether you should report it. It’s whether you’ve already reported it—and if not, what you’re going to do about it now.