If you're staking Ethereum, Cardano, Solana, or any other proof-of-stake cryptocurrency, you're probably wondering: do I owe taxes on those rewards? The short answer is yes — at least under current IRS guidance. But the full picture is more nuanced, and knowing it can help you report correctly and avoid surprises.
📍 The Bottom Line
Under current IRS rules, staking rewards are taxable as ordinary income when you receive them. The amount is the fair market value of the tokens at the moment they hit your wallet — and that value also becomes your cost basis for future sales.
What the IRS Says About Staking
The IRS hasn't issued guidance specifically for staking, but in Revenue Ruling 2023-14, they addressed a closely related question: are tokens created through crypto activities taxable as income when received? The answer was yes.
Most tax professionals apply this same reasoning to staking: when you receive tokens as staking rewards, you have income equal to the fair market value of those tokens on the day you receive them.
The Jarrett Case: A Potential Alternative View
You might have heard about the Jarrett v. United States case, where Tennessee couple Joshua and Jessica Jarrett argued that newly created tokens from staking shouldn't be taxed until sold — similar to how a farmer isn't taxed when crops grow, only when sold.
The IRS initially issued the Jarretts a refund (rather than litigating), which some interpreted as tacit agreement. However, the IRS later denied a similar refund request, making clear they still maintain staking rewards are income when received.
Conservative Approach Recommended
Until Congress or the IRS provides clearer guidance, most tax professionals recommend treating staking rewards as ordinary income when received. The Jarrett case is still not settled law, and taking the aggressive position carries audit risk.
How to Report Staking Income: Step by Step
Step 1: Track Every Reward Distribution
Record the date, amount of tokens received, and fair market value in USD at the time of receipt for every staking distribution. This is your ordinary income and your new cost basis.
Step 2: Report as Ordinary Income
Staking rewards go on Schedule 1 (Form 1040), Line 8 as "Other Income." You'll see it described as "Ordinary income from staking" or similar. The total is the sum of all reward distributions valued in USD.
Step 3: Track Your New Cost Basis
When you eventually sell those staking rewards, you'll need to calculate capital gain or loss. Your cost basis for each batch of rewards is the USD value when you received them.
Example: Ethereum Staking
- You stake 32 ETH on January 1
- Over the year, you receive 1.2 ETH in rewards at various times
- Average ETH price when rewards were received: $2,500
- Ordinary income to report: 1.2 × $2,500 = $3,000
- Your cost basis in those 1.2 ETH: $3,000
- If you sell them later for $3,600, you have a $600 capital gain
Liquid Staking (Lido, Rocket Pool, etc.)
Liquid staking adds another layer of complexity. When you stake ETH through Lido, you receive stETH (or rETH through Rocket Pool). This creates multiple potential tax events:
- Depositing ETH for stETH — potentially a taxable swap (ETH → stETH)
- stETH rebasing daily — each rebase may be taxable income
- Withdrawing — exchanging stETH back to ETH may trigger additional gain/loss
This complexity is why manual tracking is nearly impossible for liquid staking. You could have hundreds of micro-income events per year from daily rebasing alone.
Exchange-Based Staking (Coinbase, Kraken)
If you stake through a centralized exchange, they may issue a 1099-MISC or 1099-NEC for staking rewards above $600. Even if you don't receive a form, you're still required to report the income — the $600 threshold only determines whether you receive a form, not whether income is taxable.
Strategies for Managing Staking Tax Obligations
- Stake in a tax-deferred account — some self-directed IRAs allow crypto staking, which could defer or eliminate taxes depending on account type
- Harvest losses on other positions to offset staking income
- Time large staking events strategically if you have control over when you claim
- Keep meticulous records — especially for protocols that distribute rewards continuously
What About Mining vs Staking?
Mining rewards are also ordinary income, and the IRS has been clearer about this since 2014. Staking is treated similarly, though the activity itself is quite different. The key difference for taxes: miners may be able to deduct equipment and electricity costs as business expenses if mining constitutes a business. Staking generally doesn't generate the same deductions.
Track Staking Rewards Automatically
BasisTracker imports staking distributions, values them at receipt, and generates your Schedule 1 income totals automatically — saving you hours of manual calculation.
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Conclusion
Are staking rewards taxable? Under current IRS guidance: yes, as ordinary income when received. The fair market value at time of receipt is both your reportable income and your future cost basis.
The challenge isn't understanding the rule — it's the record-keeping. Especially for liquid staking protocols that rebase daily, having software that tracks every distribution and values it automatically is essentially a necessity, not a luxury.
This article is for informational purposes only. Tax treatment of staking rewards continues to evolve; consult a qualified tax professional for advice specific to your situation.