US Crypto Staking Tax Guide 2025

What is Crypto Staking?

Crypto staking is the process of locking up cryptocurrency to support a blockchain network's operations (validating transactions, securing the network) in exchange for rewards. Common examples include:

• Ethereum (ETH): Staking 32 ETH to become a validator or using staking pools/services (Lido, Rocket Pool, Coinbase)
• Cardano (ADA): Delegating to stake pools
• Solana (SOL): Delegating to validators
• Polkadot (DOT): Nominating validators
• Exchange staking: Coinbase, Kraken, Binance.US offering staking services

IRS Treatment of Staking Rewards

The IRS treats staking rewards as ordinary income based on the landmark Jarrett v. United States case (2023) and IRS Revenue Ruling 2023-14:

Key Ruling: Revenue Ruling 2023-14

In July 2023, the IRS issued Revenue Ruling 2023-14, which clarified:

"A taxpayer has gross income under § 61 when they receive cryptocurrency as a reward for validation services... The fair market value of the cryptocurrency received is included in gross income for the taxable year in which the taxpayer gains dominion and control over it."

This means staking rewards are taxable income when you receive them, not when you sell them.

Jarrett v. United States (2023)

Joshua and Jessica Jarrett staked Tezos tokens and received rewards. They argued rewards weren't income until sold (like growing crops). The IRS disagreed and issued a refund under Revenue Ruling 2023-14, confirming:

• Staking rewards = income when received
• Fair market value at receipt = taxable amount
• Cost basis = FMV at receipt

When Are Staking Rewards Taxable?

Staking rewards are taxable when you gain dominion and control over them. This typically means:

Exchange Staking

If you stake through Coinbase, Kraken, or Binance.US:

• Taxable date: When rewards appear in your account balance
• FMV: Closing price on that day (or exchange's reported value)
• Frequency: Daily, weekly, or per-epoch (depends on platform)

Solo Staking (e.g., ETH Validator)

If you run your own validator node:

• Taxable date: When rewards are credited to your validator (per-epoch, roughly every 6.4 minutes for Ethereum)
• FMV: Price at the time of receipt
• Note: Even if locked (pre-Shapella), rewards may be taxable when earned

Liquid Staking Tokens (e.g., stETH, rETH)

Liquid staking protocols like Lido (stETH) or Rocket Pool (rETH) have unique tax considerations:

• Lido (stETH): stETH rebases daily to reflect rewards. Each rebase is likely taxable income
• Rocket Pool (rETH): rETH appreciates in value vs ETH. Rewards may not be taxable until you redeem rETH for ETH
• Uncertainty: IRS hasn't issued specific guidance on liquid staking tokens

Conservative approach: Treat daily rebases (stETH) as income. Consult a crypto tax CPA for liquid staking.

How to Calculate Staking Income

Step 1: Determine Fair Market Value

Fair market value (FMV) = USD price when you received the rewards.

Example: You receive 0.05 ETH as staking rewards on March 15, 2025, when ETH = $3,000.

• FMV = 0.05 ETH × $3,000 = $150 income

Step 2: Track All Rewards

If you receive rewards frequently (daily/weekly), you must track each receipt:

Step 3: Sum Annual Income

Add all staking rewards received during the tax year. This total goes on your tax return.

How to Report Staking Rewards on Your Tax Return

Form 1040, Schedule 1 (Line 8z)

Report total staking income as "Other Income":

1. Calculate total USD value of all staking rewards received in 2024
2. Report on Schedule 1, Line 8z ("Other Income")
3. Write "Staking Rewards" or "Cryptocurrency Staking" as description
4. Amount flows to Form 1040, Line 8

Is Staking Self-Employment Income?

For most taxpayers, staking is NOT self-employment income and does not require Schedule C or self-employment tax (15.3%). Staking is passive income similar to interest or dividends.

Exception: If you run a professional staking-as-a-service business, you may need to report on Schedule C.

Cost Basis and Capital Gains

Cost Basis = Income Value

When you receive staking rewards as income, your cost basis equals the fair market value at receipt.

Example:

• March 15: Receive 0.05 ETH when ETH = $3,000
• Income = $150
• Cost basis = $150 (or $3,000/ETH)

Capital Gains When You Sell

When you later sell the staking rewards, you owe capital gains tax on any appreciation:

Example (continued):

• June 1: Sell 0.05 ETH when ETH = $3,500
• Sale proceeds = 0.05 × $3,500 = $175
• Cost basis = $150
• Capital gain = $175 - $150 = $25

Holding Period

The holding period for capital gains starts the day after you receive the rewards:

• Short-term: Held ≤ 12 months → ordinary income tax rates (10-37%)
• Long-term: Held > 12 months → preferential rates (0%, 15%, 20%)

Tax Rates

Income Tax on Receipt (2025 Rates)

Staking rewards are taxed at your marginal income tax rate:

Capital Gains Tax (When You Sell)

• Short-term: Same as income tax rates (10-37%)
• Long-term: 0%, 15%, or 20% depending on income

Example Scenarios

Scenario 1: Coinbase Staking

You stake 10 ETH on Coinbase at 4% APY.

• Annual rewards: 0.4 ETH
• Received: Weekly (0.0077 ETH/week)
• Average ETH price: $3,000

Tax treatment:

• Income: 0.4 ETH × $3,000 = $1,200 ordinary income
• Report on Schedule 1, Line 8z
• Cost basis for all rewards = $1,200 total

Scenario 2: ETH Solo Validator

You run an Ethereum validator with 32 ETH.

• Annual rewards: ~1.2 ETH (varies)
• Received: Per-epoch (every ~6.4 minutes)
• Tracking: Use crypto tax software to track thousands of micro-rewards

Tax treatment:

• Income: 1.2 ETH × average price = ~$3,600 ordinary income
• Each micro-reward has individual FMV and cost basis
• Software like Koinly or CoinTracker is essential

Scenario 3: Lido stETH

You stake 5 ETH through Lido and receive 5 stETH.

• Daily rebases: stETH balance increases daily (e.g., 5.0001 stETH, 5.0002 stETH, etc.)
• Conservative treatment: Each rebase = taxable income
• Alternative view: No income until you redeem stETH for ETH (not IRS-confirmed)

Consult a tax professional for liquid staking tokens due to IRS uncertainty.

Record Keeping Requirements

The IRS requires detailed records for staking rewards:

What to Track

• Date and time of each reward receipt
• Amount received (in crypto)
• Fair market value in USD at time of receipt
• Exchange or wallet where received
• Type of staking (solo, pool, exchange)

How to Track

1. Crypto tax software: Koinly, CoinTracker, TokenTax auto-track staking
2. Spreadsheet: Manual tracking (tedious for frequent rewards)
3. Exchange reports: Coinbase/Kraken provide annual staking reports

Retention Period

Keep records for at least 3 years after filing (6 years if underreporting >25% of income, unlimited if fraud).

State Taxes

Most states with income tax treat staking rewards the same as federal:

• Income tax: Ordinary income when received
• Capital gains: When sold

No state income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming (staking income not taxed at state level).

Common Mistakes to Avoid

1. Not reporting staking income: IRS Revenue Ruling 2023-14 requires reporting
2. Reporting only when sold: Income tax applies at receipt, not sale
3. Wrong FMV calculation: Use price at time of receipt, not year-end
4. Forgetting cost basis: Cost basis = income value (prevents double taxation)
5. Ignoring small rewards: All rewards are taxable, even $1 amounts
6. Not tracking liquid staking rebases: stETH rebases may be taxable events

FAQs

Do I pay taxes twice on staking rewards?

No. You pay income tax when received and capital gains tax on appreciation when sold. The cost basis prevents double taxation of the original income amount.

Are staking rewards considered self-employment income?

No, for most taxpayers. Staking is passive income (like interest) and doesn't require Schedule C or self-employment tax.

What if I can't withdraw locked staking rewards?

Per Revenue Ruling 2023-14, rewards are taxable when you gain "dominion and control," even if locked. The Jarrett case suggests locked Ethereum staking rewards were taxable when earned.

Can I deduct staking expenses?

Only if you're running a staking business. Solo validators may deduct:

• Hardware costs (depreciated)
• Electricity
• Internet
• Software/services

Casual stakers using exchanges cannot deduct expenses.

How do I report staking on TurboTax?

1. Go to Federal → Wages & Income
2. Scroll to Less Common Income
3. Select Miscellaneous Income, 1099-A, 1099-C
4. Click Other reportable income
5. Enter description: "Cryptocurrency Staking Rewards"
6. Enter total amount

What about DeFi staking (yield farming)?

DeFi staking/yield farming rewards are also ordinary income when received. Same rules apply, but tracking can be more complex. Use crypto tax software with DeFi support (Koinly, TokenTax).

Tools & Resources

Crypto Tax Software

• Koinly - Best overall, excellent staking tracking
• CoinTracker - Good for Coinbase stakers
• TokenTax - Best for complex DeFi staking

IRS Resources

• Revenue Ruling 2023-14
• IRS Crypto FAQs

Final Thoughts

Staking rewards are taxable income when received per IRS Revenue Ruling 2023-14. While the tax treatment adds complexity, proper tracking with crypto tax software makes compliance straightforward. The key is understanding that rewards = income at receipt and sales = capital gains on appreciation.

For most stakers earning less than $10,000/year in rewards, the tax impact is manageable. High-volume stakers should consider working with a crypto-specialized CPA to optimize deductions and ensure accurate reporting.