Revenue Ruling 2023-14 settled it. Staking rewards are ordinary income, taxable at fair market value the moment you receive them — and the IRS made its position explicit.
Crypto staking taxes work differently depending on how you stake. Running a validator node, using Coinbase or Kraken, participating in Lido's liquid staking — the rules are the same in principle, but the practical details vary enough to cause real confusion about staking rewards taxes. This guide covers all three approaches, with dedicated coverage of Ethereum staking (the scenario people search for most), the Jarrett court case, and a step-by-step walk-through for reporting on your return.
What Is Crypto Staking?
Staking means locking up cryptocurrency to help validate transactions on a proof-of-stake blockchain. Instead of miners competing to solve computational puzzles (Bitcoin's approach), proof-of-stake networks like Ethereum select validators based on how much crypto they've committed as collateral. In exchange for helping secure the network, validators earn newly minted tokens as staking rewards.
The mechanics vary from one network to another. But the core deal is consistent: stake your crypto, earn rewards denominated in that same crypto (or sometimes a separate reward token), all without the energy costs of mining.
Three Types of Staking — and Why the Differences Matter for Taxes
Three main approaches exist for staking, and each has different practical implications for how you track and report income:
Validator staking means running your own node directly on the blockchain. For Ethereum, that requires a minimum of 32 ETH plus technical infrastructure. Rewards come directly from the protocol — consensus layer rewards for attesting to blocks, plus execution layer rewards (tips and MEV) from transaction fees. No intermediary, no 1099 form. You track everything yourself.
Exchange staking means handing it off to a centralized platform. Coinbase, Kraken, Binance — these services let you deposit crypto, earn rewards, and receive a Form 1099-MISC or the newer Form 1099-DA (rolling out for tax year 2025). Simpler to track, same tax treatment.
Liquid staking means depositing crypto into a protocol like Lido or Rocket Pool and receiving a derivative token — stETH for ETH staked on Lido, rETH on Rocket Pool, cbETH on Coinbase. These tokens represent your staked position plus accrued rewards, and they introduce tax complexity that neither of the other types create. More on this below.
All three generate taxable income under current US law. How you report depends on which type you're using. For the broader picture of how DeFi taxes work, see our DeFi guide.
Are Staking Rewards Taxable Income?
Yes. Full stop.
Staking rewards are taxable as ordinary income in the United States. When you receive them, the IRS treats them as income equal to the fair market value of the tokens on the date you receive them. Get 0.5 ETH in staking rewards on a day ETH trades at $2,400? That's $1,200 subject to staking income tax at your marginal rate, just like wages.
This applies whether or not you receive a 1099. Many DeFi and validator stakers never see a tax form, but the obligation to report is exactly the same.
To calculate your staking income for any given reward distribution:
- Note the exact date you received the reward
- Look up the fair market value at that moment (price per token × quantity)
- Record that dollar amount as ordinary income
- That same amount becomes your cost basis for the reward tokens you now hold
The Tax Foundation notes that treating crypto rewards as ordinary income rather than property creation has been contested — but the IRS position is clear and binding under current law.
IRS Revenue Ruling 2023-14: The Definitive Guidance
Revenue Ruling 2023-14, issued in July 2023, is the most important piece of guidance governing crypto staking taxes. It establishes that staking rewards are includable in gross income under Section 61(a) of the Internal Revenue Code — the section defining gross income as "all income from whatever source derived."
The ruling targets taxpayers who use proof-of-stake protocols to validate transactions and receive cryptocurrency as rewards. The IRS determined those rewards are income in the year received, valued at fair market value at receipt. And it applies to both direct staking and staking through centralized exchanges.
Read the full ruling at the IRS website. Here's what it means in practice.
What "Dominion and Control" Means for Your Staking Rewards
The phrase that does the work in Revenue Ruling 2023-14 is "dominion and control." Rewards become taxable when you can freely withdraw, sell, transfer, or otherwise use them. This is a longstanding tax law principle applied to a new context.
If your staking rewards land in your wallet and you can sell them immediately — you have dominion and control, and you owe income tax on their FMV at that moment. Simple enough.
But here's the catch: if rewards are locked or restricted, the analysis shifts. Pre-Shanghai Ethereum is the clearest example. Validators who deposited into the Beacon Chain before April 2023 couldn't withdraw rewards for over a year. Most tax professionals argued those locked rewards weren't taxable until the staker could actually access them. Revenue Ruling 2023-14 focused on scenarios where dominion and control exists at receipt — meaning the locked-reward question remains somewhat unresolved. Most practitioners now advise recognizing income when withdrawals first become possible.
Practical takeaway: rewards accessible immediately from an exchange are taxable that year. Rewards that are automatically restaked without your ability to withdraw them — consult a crypto-focused CPA about timing.
The Jarrett v. United States Case — What It Actually Means
The most-cited challenge to IRS staking tax treatment was Jarrett v. United States. The Jarretts argued staking rewards are newly created property — not income — and tax should only apply on sale. Here's what most coverage gets wrong: the DOJ offered a full refund; the Jarretts rejected it wanting a court ruling on the merits. The case was dismissed as moot. No court ever ruled staking rewards aren't income. Zero precedent.
Revenue Ruling 2023-14, issued after the dismissal, settled the question definitively. Until Congress acts or the IRS changes course, staking rewards are ordinary income.
ETH Staking Taxes — How Ethereum Staking Rewards Are Taxed
Ethereum is the world's largest proof-of-stake network, and ethereum staking taxes are the most commonly searched staking tax scenario. They're also the most nuanced — because of the Merge timeline and the explosion of liquid staking protocols.
Ethereum Validator Staking (32 ETH)
After the Merge in September 2022, Ethereum went entirely to proof of stake. Validators who deposited 32 ETH to the Beacon Chain earn rewards for producing and attesting to blocks.
The timeline matters for taxes. Validators who deposited before the Shanghai/Capella upgrade in April 2023 couldn't withdraw rewards for over a year. That locked period created real uncertainty. Most tax professionals now say: recognize income when you first gained the ability to withdraw — i.e., post-April 2023 for those early validators.
After April 2023, ETH staking rewards are accessible. Each epoch reward is ordinary income at fair market value when it accrues. Practically, validators aggregate and report income when rewards sweep to their designated execution layer address.
Your cost basis for each ETH reward lot equals the FMV at receipt. When you eventually sell, you recognize a capital gain or loss based on price movement since receipt.
Ethereum Liquid Staking (stETH, cbETH, rETH)
Liquid staking is where eth staking tax gets genuinely complicated. Protocols like Lido and Rocket Pool let you stake ETH without running a validator, giving you a liquid staking token in return — stETH, rETH, cbETH.
Two potential tax events exist here:
1. Depositing ETH for a liquid staking token. The IRS hasn't issued specific guidance on this exchange. Many tax professionals treat it as a taxable crypto-to-crypto swap — you disposed of ETH and acquired stETH, triggering a capital gain or loss. Others argue it's a nontaxable "wrapping" transaction. This remains genuinely uncertain; the conservative approach is to treat it as taxable.
2. Ongoing staking rewards through rebasing. With stETH, your token balance increases automatically each day as rewards accrue. Each increase represents ordinary income at the FMV of those additional tokens on the date they accrue. Track these daily accruals — or use crypto tax software that handles it automatically.
For cbETH and rETH, the token price appreciates rather than the balance increasing. The mechanics differ but the income recognition is similar. Our DeFi taxes guide covers wrapped token mechanics in more depth.
Capital Gains Tax When You Sell Staking Rewards
Two separate tax events happen over the lifetime of staking rewards. You've already paid ordinary income tax on FMV at receipt. That FMV becomes your cost basis.
When you later sell, trade, or use those tokens:
- Capital gain = sale price minus cost basis
- Short-term (held under 1 year from receipt): taxed at your ordinary income rate
- Long-term (held over 1 year from receipt): taxed at 0%, 15%, or 20% depending on income
Real example: You receive 2 ETH as staking rewards when ETH is at $2,500. That's $5,000 of ordinary income — you report it, your cost basis is $5,000. A year and a day later, you sell for $7,000. Long-term capital gain: $2,000. Different tax event, different dollar amount, preferential rate.
This is not getting taxed twice on the same money. You paid income tax on $5,000 you earned. You're now paying capital gains tax on $2,000 of appreciation that happened after you received the tokens. Standard tax treatment.
Getting the cost basis method right matters when you have multiple lots of staking rewards received at different prices — FIFO, LIFO, or HIFO each produce different outcomes. CoinTracking's crypto tax calculator automates this across all your staking reward lots.
Your capital gains from selling staking rewards follow the same rules as any other crypto disposal.
Are Staking Rewards Taxed Twice?
No — not in the sense most people mean. Income tax applies to the FMV you received. Capital gains tax applies only to appreciation after receipt. Two different economic gains, two different periods, two different dollar amounts.
Some lawmakers challenge this framing — Rep. Carey's December 2025 letter to the IRS called the current treatment unfair and asked for revised guidance. That debate continues. Under current law, the rules are clear: track every distribution.
For the full list of crypto taxable events beyond staking, see our taxable events guide.
How Are Different Types of Staking Taxed?
The underlying tax principle is the same across all staking types — ordinary income at FMV when received — but practical reporting differs significantly:
| Type | Platform | 1099 Issued? | Complexity | Report On |
|---|---|---|---|---|
| Exchange staking | Coinbase, Kraken, Binance | Yes (1099-MISC / 1099-DA) | Low | Schedule 1 |
| Validator staking | Self-operated node | No | High | Schedule 1 or C |
| Liquid staking | Lido (stETH), Rocket Pool (rETH) | No | High | Schedule 1 |
| DeFi staking | Aave, Compound, Curve | No | Very high | Schedule 1 |
Exchange staking is the simplest: rewards appear in your account, the exchange may issue a 1099-MISC for amounts over $600 (Form 1099-DA starting tax year 2025), and each distribution is ordinary income at FMV. One detail that trips people up: the $600 threshold only determines whether the exchange sends you a form — you must report all amounts, no de minimis exception.
Validator staking requires self-tracking: date, quantity, and FMV at receipt for every distribution. Validators who stake consistently with a profit motive may qualify to report on Schedule C and deduct hardware, electricity, and operating expenses.
Liquid staking adds two potential tax events: the initial ETH → stETH swap (possibly taxable as a crypto-to-crypto exchange) and ongoing daily rebasing income (each stETH balance increase is a separate income event). See our DeFi taxes guide for the full mechanics.
DeFi staking rewards from platforms like Aave or Curve distribute per block in some cases — creating hundreds of income events per day. This is where a crypto tax calculator becomes essential: manually tracking hundreds of income events per day across multiple protocols, calculating FMV at receipt for each, and then tracking cost basis for disposal is not something you can do in a spreadsheet at scale. The calculator pulls on-chain data, prices each event, and generates your Schedule 1 income report automatically.
NFT Staking Rewards: How They're Taxed
NFT staking has emerged as a separate income stream from traditional crypto staking — but the tax treatment follows the same principle.
Some NFT projects allow holders to stake their NFTs (or lock them in a smart contract) to earn token rewards. Pudgy Penguins staking for PENGU tokens, for example, or various gaming NFT projects that distribute in-game currency to staked holders. These rewards are ordinary income at fair market value when you receive them — the same rule that applies to ETH staking rewards.
The specific mechanics vary by project:
- Token rewards distributed to NFT stakers — ordinary income at FMV on receipt
- NFT staking that increases the NFT's value — not a taxable event until you sell; any increase is a capital gain on disposal
- Points or non-transferable credits — generally not taxable until converted to a tradeable asset
If the reward token has a market price when received, you have taxable income. If it's a non-transferable in-game credit with no market, the IRS position is less clear — but most practitioners apply the same income recognition principle once the asset becomes liquid.
Track NFT staking rewards the same way you track crypto staking: date received, FMV in USD at receipt, and maintain that FMV as your cost basis for the reward tokens going forward.
Can You Deduct Staking Expenses?
For most US individual stakers, the deduction options are limited.
The Tax Cuts and Jobs Act (TCJA) of 2017 suspended miscellaneous itemized deductions through 2025 (likely extended). If the IRS treats your staking as hobby activity, you can't deduct expenses in any meaningful way under current law.
Business stakers have more options. If your staking rises to a trade or business — consistent, profit-motivated, significant operational involvement — you can deduct on Schedule C: hardware, electricity, software, home office, and professional fees.
The hobbyist vs. business line isn't always obvious. A single Ethereum validator alongside a day job probably doesn't qualify. Running 10+ validators as your primary activity almost certainly does. If you're in the gray zone, a crypto tax calculator gives you an accurate income picture to bring to your CPA.
How to Report Staking Rewards on Your Tax Return
Knowing how to report staking rewards on taxes is the step most investors skip or get wrong. Follow these steps:
Step 1: Gather your records. Every staking reward distribution needs a date, token, quantity, and FMV at receipt. Exchange users: pull your transaction history. Validator stakers: use a beacon chain explorer or CoinTracking's automated import at /imports.
Step 2: Calculate total staking income. Sum the dollar value (FMV × quantity) for every distribution during the tax year. This is your ordinary income from staking.
Step 3: Report income on Schedule 1. Individual stakers report on Schedule 1 (Form 1040), Line 8z, "Other Income." If you received a Form 1099-MISC from an exchange, it points you to this line. New 1099-DA recipients: follow that form's instructions.
Step 4: Business stakers use Schedule C. If your staking is a trade or business, report gross income on Schedule C, deduct expenses, and pay self-employment tax on net income.
Step 5: Track cost basis per lot. Each reward distribution is a separate lot with its own cost basis (the FMV at receipt). Your crypto tax software tracks this automatically using your chosen FIFO/LIFO/HIFO method.
Step 6: Report capital gains when you sell. When you sell staking rewards, each sale goes on Form 8949. Totals carry to Schedule D. Short-term gains (Part I) and long-term gains (Part II) are reported separately.
And yes — even without a 1099, you must report. The IRS has broad visibility into exchange activity through information reporting, and underreporting staking income is one of the most common crypto tax errors. See our US crypto tax guide for the full reporting picture.
How CoinTracking Helps With Crypto Staking Taxes
Tracking staking income manually is genuinely painful — especially with daily reward distributions, multiple validators, or liquid staking protocols that rebase constantly. CoinTracking has handled this problem since 2012, and over 1.6 million users rely on it for crypto tax reporting.
Connect to 300+ exchanges and wallets, and CoinTracking imports your staking transactions automatically, classifying each one as an income event. For each distribution, it pulls the historical price at receipt, calculates FMV, and adds the result to your ordinary income report. When you later sell those rewards, cost basis is already tracked per lot — capital gains calculate automatically.
The output: a Schedule 1 income report for your staking rewards, a Form 8949 for all disposals, and a breakdown by coin, platform, and tax year — ready for your CPA or your own filing. Import your exchange data at /imports to get started.
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