- The IRS has clarified that income from crypto staking should be treated as gross income
- Previously, the IRS had not issued formal guidance on staking rewards taxation, but it now aligns with other countries in treating staking as income
- Stakers will need to track and report their staking rewards’ dollar value in their tax returns, either manually or using crypto accounting software.
The Inland Revenue Service (IRS) has said that income from crypto staking should be classed as income, echoing sentiments from other countries. While gains from cryptocurrency trading have always been classed as capital gains, the issue of staking is more subtle, given the methodology used in the process. The IRS yesterday published a ruling confirming that coins earned from staking should be classed as income at their valuation when they are received, with any gains made from that point on classed as capital gains. This follows concerns that the taxation of crypto staking could be a “compliance nightmare”.
U.S Joins Other Countries in Staking Treatment
Until now, the IRS had never issued formal guidance over taxation of staking rewards, but the general consensus with regard to best practice has been to treat it as income. The IRS has now confirmed this is the case:
If a cash-method taxpayer stakes cryptocurrency native to a proof-of-stake blockchain and receives additional units of cryptocurrency as rewards when validation occurs, the fair market value of the validation rewards received is included in the taxpayer’s gross income in the taxable year in which the taxpayer gains dominion and control over the validation rewards.
The agency also confirmed that fair market value is “determined as of the date and time the taxpayer gains dominion and control over the validation rewards.” This same practice has been adopted by tax agencies in other countries, meaning that the U.S. is falling into line with other major jurisdictions.
The ruling offers some much-needed clarity for stakers and comes three years after four congressmen warned that “the taxation of “staking” rewards as income may overstate taxpayers’ actual gains from participating in this new technology.
Don’t Do it Manually
What does this mean for the average staker? Those using crypto accounting software will see their calculations made for them of course (which is the ideal way of doing things), but those doing things manually are going to have to take note of every time they receive a staking reward and check the dollar value of what they have received.
This will then be included in their ‘gross income’ on their tax return.
