Staking Rewards Tax Treatment: What You Owe and When to Pay

When you earn staking rewards from Ethereum, Cardano, or Solana, the IRS doesn’t see it as a gift or a bonus-it sees it as income. And that means you owe taxes on it, right then and there, even if you never sell a single coin. This isn’t speculation. It’s the law, as clarified by the IRS in July 2023 with Revenue Ruling 2023-14. If you’re staking crypto and haven’t figured out how taxes apply, you’re risking an audit, penalties, or worse.

When Exactly Do You Owe Tax on Staking Rewards?

The key moment isn’t when you cash out. It’s not when you see the reward in your wallet. It’s when you have dominion and control over it. That’s the legal phrase the IRS uses. It means the second your staking reward lands in your wallet-whether it’s a personal wallet, a hardware wallet, or even one on Binance or Coinbase-you’re taxed on its value in U.S. dollars at that exact moment.

Let’s say you stake 10 ETH and get 0.03 ETH as a reward on March 12, 2025. On that day, ETH is trading at $3,200. Your taxable income? $96. Not $96 when you sell. Not $96 when you move it. $96 on March 12. The IRS doesn’t care if you hold it for five years. You owe income tax on that $96 in the year you received it.

This rule applies whether you stake directly on the blockchain or through a centralized exchange. No exceptions. Even if the platform doesn’t let you withdraw the reward right away, if you can transfer, sell, or trade it-even partially-you’ve hit the taxable moment.

How Much Tax Do You Actually Pay?

Staking rewards are taxed as ordinary income. That means they’re added to your other income-your salary, freelance gigs, side hustle-and taxed at your regular income tax rate. If you’re in the 24% tax bracket, that $96 reward costs you $23.04 in federal taxes alone. State taxes? That’s another layer. California, New York, Washington-they all tax crypto income too.

Here’s the catch: you might not have cash on hand to pay. If you earned 0.5 SOL worth $150 but never sold any crypto, you still owe taxes on that $150. Many people get caught off guard. They think, “I didn’t make any money-I just got more crypto.” But the IRS doesn’t see it that way. They see you gaining value. And value = taxable income.

What Happens When You Sell Your Staking Rewards?

Now, here’s where it gets layered. When you eventually sell, trade, or spend those staking rewards, you trigger a second tax event: capital gains.

Let’s go back to the example. You got 0.03 ETH on March 12, 2025, when it was worth $96. You hold it. On November 1, 2025, ETH hits $3,800. You sell 0.03 ETH. That’s now worth $114. Your capital gain? $114 - $96 = $18.

If you held it less than a year? Short-term capital gain. Taxed at your ordinary income rate-same as your salary. If you held it over a year? Long-term capital gain. That’s taxed at 0%, 15%, or 20%, depending on your income. So you paid tax on $96 as income. Then you pay tax again on the $18 gain. Double taxation? Yes. That’s how the IRS treats crypto.

Are You a Hobbyist or a Business?

Most people stake as a side activity. But if you’re staking $50,000+ worth of crypto, running multiple nodes, using dedicated hardware, and treating it like a job-you might be running a business. And that changes everything.

Hobby stakers report staking rewards on Line 8 of Schedule 1 (Other Income). No self-employment tax. Simple.

Business stakers report on Form Schedule C. That means you pay self-employment tax (15.3%) on top of income tax. But you also get to deduct expenses: electricity for your rig, hardware costs, software subscriptions, even internet bills if you can prove they’re used primarily for staking.

How do you know which category you’re in? The IRS looks at:

• How much time you spend managing your staking
• Whether you’re trying to make a profit
• If you keep detailed records
• Whether you’ve changed your behavior to optimize returns

If you’re staking casually, you’re likely a hobbyist. If you’re running 10 nodes, tracking yield rates daily, and optimizing validator performance-you’re probably a business. Don’t guess. Get it right. Mistakes here can lead to underpayment penalties.

What About Exchange Reports?

Major exchanges like Coinbase, Kraken, and Binance now issue Form 1099-MISC for staking rewards. They send a copy to you and the IRS. If you receive one, you must report the income. If you don’t, the IRS knows. And they’re actively matching 1099s to tax returns.

One tax attorney in Austin told me about a client who ignored a $1,200 staking 1099-MISC. Two years later, the IRS sent a notice: “You owe $360 in taxes plus $240 in penalties.” The client didn’t even realize they’d received the rewards-they were staking on a wallet connected to Coinbase and forgot.

Don’t be that person. If you stake anywhere, assume they’re reporting it. Check your email. Check your account statements. Track every reward. Even small ones.

Record-Keeping: The One Thing You Can’t Skip

You need to track three things for every staking reward:

1. Date received - exact UTC timestamp if possible
2. Amount received - e.g., 0.045 ADA
3. USD fair market value on that date - use a reputable price source like CoinGecko or CoinMarketCap

Don’t use the average price for the month. Don’t guess. Use the price at the exact time the reward hit your wallet. If you used a centralized exchange, check your transaction history. If you staked directly on a blockchain, use a block explorer like Etherscan or Cardanoscan to get the block timestamp and then cross-reference with historical prices.

Manual tracking? Possible if you staked once or twice. If you earned rewards weekly or monthly? You’ll drown in spreadsheets. Tools like Koinly, TokenTax, or Blockpit automate this. They pull data from your wallets and exchanges, calculate your income and capital gains, and generate the right IRS forms. Worth every dollar if you’re serious.

What’s Going to Change?

There’s a lawsuit challenging the IRS’s position: Jarrett v. United States. The taxpayer argues staking rewards are like mining gold-you don’t owe tax until you sell the gold. The IRS says no, you owe tax the moment you take possession. The Sixth Circuit heard oral arguments in 2023. A decision is expected in 2025 or early 2026.

But here’s the reality: even if the court rules in favor of Jarrett, it won’t change taxes for 2023, 2024, or 2025. The IRS won’t go back and refund taxes already paid. And Congress hasn’t passed any law to override the current rule. So for now, the IRS position stands.

Don’t wait for a legal win. Plan for the worst-case scenario: the current rules stay. Because if they do, and you didn’t pay, you’ll be in trouble.

What Should You Do Right Now?

Here’s your checklist for 2025:

1. Export all staking transaction history from every wallet and exchange you used in 2025.
2. Identify every reward-even tiny ones under $1.
3. Look up the USD value for each reward on the exact date received.
4. Calculate your total staking income for the year.
5. Track when you sold or spent each reward to calculate capital gains.
6. Decide if you’re a hobbyist or business and choose the right form.
7. Use tax software to generate Schedule 1 or Schedule C.

If you’re overwhelmed, hire a crypto-savvy CPA. Look for someone who’s filed at least 50 crypto tax returns. Ask if they’ve handled staking rewards specifically. Most general CPAs still don’t understand this. Don’t risk it.

Staking is a powerful way to earn passive income from crypto. But it’s not free. The IRS isn’t waiting. And if you ignore this, you’ll pay more later-in penalties, interest, and stress.