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Regulators
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August 2, 2023

IRS Says Staking Rewards Can Now Be Taxed As Income Once Tokens Are Received

By Conor Devitt

The Internal Revenue Service (IRS) says that US crypto traders staking rewards will now have to treat those earnings as part of their taxable income that year.

Staking involves investors locking up their crypto assets into the blockchain in order to validate transactions and obtain rewards.

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Explains the IRS,

“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 are included in the taxpayer’s gross income in the taxable year in which the taxpayer gains dominion and control over the validation rewards. The fair market value is determined as of the date and time the taxpayer gains dominion and control over the validation rewards.”

The IRS also notes that if a taxpayer stakes crypto through an exchange, they also have to include those rewards in their gross income for the taxable year.

Jesse Powell, the co-founder of the crypto exchange Kraken, says on Twitter that the ruling is “disappointing.”

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“Disappointing ruling that fails to account for the inflation component, and the consequences of not staking. ‘Rewards’ are a split you work to claim.

* If nobody stakes, the chain is dead and value of all coins goes to 0
* if you don’t stake, your % ownership and % vote go down” 

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