Staking rewards are taxable income. The IRS made this crystal clear in Revenue Ruling 2023-14, and in 2025, enforcement is ramping up with new reporting requirements.
Here's what every staker needs to know.
When Staking Rewards Become Taxable
The IRS uses one key phrase: "dominion and control."
Your staking rewards are taxable the moment you can freely transfer, sell, or use them — not when you actually sell.
Scenario | When Taxable |
|---|---|
Rewards credited and immediately accessible | At time of credit |
Rewards locked until unstaking period ends | When lock-up ends |
Rewards auto-compounding (can't withdraw) | When withdrawal becomes available |
Example: You earn 0.5 ETH in staking rewards on March 15. ETH = $3,000. You owe income tax on $1,500 — even if you never sell.
The Double Tax Trap
This is where staking gets painful.
Tax Event #1: Income Tax (When You Receive)
Staking rewards = ordinary income at fair market value when received.
Taxed at your income tax rate (10-37%)
Reported on Schedule 1, Line 8z ("Other Income")
No minimum threshold — even $1 is reportable
Tax Event #2: Capital Gains Tax (When You Sell)
When you later sell those staked rewards, you owe capital gains on any price change.
Held | Tax Rate |
|---|---|
Less than 1 year | Short-term: 10-37% |
More than 1 year | Long-term: 0-20% |
The Math
Event | Amount | Tax |
|---|---|---|
Receive 0.5 ETH @ $3,000 | $1,500 income | Income tax (up to 37%) |
Sell 0.5 ETH @ $4,000 | $500 gain | Capital gains tax |
Total taxable | $2,000 |
Important: You're not double-taxed on the same money. The $1,500 you reported as income becomes your cost basis. You only pay capital gains on the additional $500 gain.
But if prices drop: You sell that 0.5 ETH at $2,500. You still owe income tax on the original $1,500 — but you can claim a $500 capital loss.
ETH Staking: Three Different Tax Treatments
How you stake ETH determines your tax complexity.
1. Direct/Native Staking (Solo Validator or Staking Pool)
You stake ETH directly on the Ethereum network.
Event | Tax Treatment |
|---|---|
Depositing ETH to stake | Not taxable (you still own ETH) |
Receiving rewards | Ordinary income when unlocked |
Selling staked ETH | Capital gains/loss |
Simplest approach — but requires 32 ETH for solo validation or joining a pool.
2. Centralized Exchange Staking (Coinbase, Kraken)
Exchanges handle staking for you and may issue liquid tokens.
Coinbase (cbETH):
Swapping ETH → cbETH may be taxable (crypto-to-crypto trade)
cbETH value increases over time (no frequent reward deposits)
Swapping cbETH → ETH is another potential taxable event
Kraken, Binance:
Rewards typically credited directly as new tokens
Each reward = ordinary income at receipt
Watch out: Coinbase labels ETH → cbETH conversions as taxable events. This creates capital gains before you even earn staking rewards.
3. Liquid Staking (Lido stETH, Rocket Pool rETH)
This is where taxes get messy.
Protocol | How Rewards Work | Likely Tax Treatment |
|---|---|---|
Lido (stETH) | Balance increases over time (rebasing) | Each rebase = income event |
Rocket Pool (rETH) | Token value increases (non-rebasing) | Capital gains at sale only |
Lido (stETH) creates more tax events:
Your stETH balance grows daily
Each increase is technically income
Hundreds of micro-income events per year
Rocket Pool (rETH) may be more tax-efficient:
Same number of rETH tokens, value increases
No income events until you sell
All gains taxed as capital gains (potentially lower rate)
The ETH → stETH Question
Is swapping ETH for stETH a taxable event?
Interpretation | Tax Result |
|---|---|
Conservative (Swap) | Taxable — you traded one asset for another |
Aggressive (Receipt) | Not taxable — stETH is just a "receipt" for staked ETH |
Most tax professionals recommend the conservative approach. The IRS hasn't issued specific guidance, so treating it as a swap is safer.
Staking on Exchanges: What Gets Reported
1099-MISC (Already Required)
If you earn $600+ in staking rewards on a US exchange, you'll receive Form 1099-MISC. The IRS gets a copy.
1099-DA (New for 2025)
Starting 2025, exchanges report gross proceeds from sales. If you sell staked tokens through a US exchange, that sale is reported.
No 1099 ≠ No taxes. You must report all staking income regardless of whether you receive a form.
Staking Pools & Validators
Pool Staking
Your share of pool rewards = your taxable income. Pool fees may be deductible if you're staking as a business.
Running a Validator
If you run a validator node as a business:
Rewards = business income (Schedule C)
Equipment may be deductible
Self-employment tax (15.3%) applies
Common Mistakes
Not reporting small amounts — There's no minimum. $5 in staking rewards is taxable.
Using sale price instead of receipt price — Income is based on value when received, not when sold.
Ignoring locked rewards — If rewards were locked, they're taxable when they unlock, not when earned.
Missing the stETH rebase events — Each balance increase is a separate income event.
Double-counting income as gains — Your reported income becomes your cost basis. Don't pay tax twice on the same amount.
Reporting Staking on Your Tax Return
Form | What to Report |
|---|---|
Schedule 1, Line 8z | Staking income (write "Staking Rewards") |
Schedule C | If staking is a business |
Form 8949 | Capital gains/losses when selling staked tokens |
Schedule D | Summary of capital gains/losses |
Tax-Saving Strategies
Choose your protocol wisely — rETH (Rocket Pool) may create fewer taxable events than stETH (Lido)
Hold rewards 1+ year — Convert short-term gains to long-term rates (0-20% vs 10-37%)
Track cost basis precisely — Your income amount becomes your basis for future sales
Harvest losses — If staked tokens drop below your income value, selling creates a deductible loss
Use crypto tax software — Manual tracking of daily staking rewards is nearly impossible
The Bottom Line
Event | Tax Type | Rate |
|---|---|---|
Receive staking rewards | Ordinary Income | 10-37% |
Sell staked tokens (held < 1 year) | Short-term Capital Gains | 10-37% |
Sell staked tokens (held > 1 year) | Long-term Capital Gains | 0-20% |
Staking isn't free money — the IRS wants their cut twice. Once when you earn it, and again when you sell it (if prices rise).
Track every reward, document every unlock date, and don't let the "double tax trap" catch you by surprise.
Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Consult a qualified tax professional for advice specific to your situation.
By Ran Chen, EA, CFP®