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23 Jan, 2024 · 17 min read
Recent announcement from the IRS made crypto staking taxes jump to the front page of the crypto industry news.
In the US, crypto staking rewards are taxed under income taxes, with different reporting requirements than crypto trading.
Let’s cover how crypto staking is taxed, how to report this staking income, and much more!
KEY TAKEAWAYS ABOUT CRYPTO STAKING TAXES IN THE US
Crypto staking rewards are taxed at the income level in the US.
You must recognize the FMV of the staking rewards or interest you received at the time you received them.
Crypto tax software like CoinTracking can automatically recognize that FMV.
You need to report your staking rewards by including that income in your US Individual Income tax return.
What is crypto staking?
Staking supports a blockchain network in increasing its security by locking assets while earning cryptocurrencies as a reward for providing that service.
Proof of Stake – PoS
Proof-of-Stake (PoS) is a consensus protocol for blockchain networks, where transactions are confirmed via staking, creating new blocks and offering rewards for people locking those assets on the blockchain.
Staking Rewards
People locking assets on PoS networks are entitled to earning rewards, usually in the form of the same cryptocurrency, for providing a service to the network, increasing its efficiency and sustainability.
How is crypto staking taxed in the US?
Crypto staking is taxed in the US at the income level, leading investors to report the total amount of rewards they received during the year at their Fair Market Value (in USD). Let’s cover the details.
Transfer coins for staking
In the US, transferring crypto between personal wallets without incurring any sale is not a taxable event. You can transfer your coins from one wallet to another before staking the asset without paying any crypto taxes.
Receiving crypto staking rewards
Receiving crypto staking rewards is a taxable event in the US, subject to income taxes based on your bracket for overall income in the tax year.
You should recognize the Fair Market Value of the staking rewards and then report that income.
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Taxes on Staking rewards
Are staking rewards taxed twice?
Some crypto investors argue that crypto staking rewards are taxed twice, something that should not be allowed under the current tax law, but let’s look into it.
You have to recognize the fair Market Value of the crypto staking rewards when you receive them, and those are taxed at the income level.
If you hold your coins and later sell them at a profit, compared to the previous cost basis (when you received the rewards), you’d be taxed at a capital gains tax level.
Example
Let’s assume you locked ETH and received rewards at a 5% APY. After a couple of months, you receive 0.2 ETH. When you receive that 0.2 ETH, each ETH is worth $1K.
When you receive the 0.2 ETH, you should recognize its FMV ($200) as income.
If you hold that ETH for 14 months and decide to sell it, you’d need to recognize the gain/loss in the transaction. Let’s assume that each ETH is worth $1.5K at that time. In that case, you should recognize a gain of $100 ($300-$200).
Staking rewards are sold immediately
If you receive crypto staking rewards, you’d have to report their FMV at that time, taxed at income level, but if you sell them immediately, you’d have a marginal gain/loss, given that the price of the underlying assets almost didn’t significantly change, but you’d still need to report it.
Staking rewards are held
If you hold your staking rewards, you’d be taxed when you first received them, but no more taxes are due until you sell any of your holdings.
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How is DeFi staking taxed?
Crypto staking rewards are taxed at the income level, whether you’re staking with the Ethereum network, a liquid staking tool, or a DeFi protocol.
Every time you earn crypto staking rewards from a network or a DeFi protocol, you need to recognize the Fair Market Value (in USD) of those rewards as income when receiving them.
How to report crypto staking rewards on taxes
You have to report the income you gain from crypto staking rewards and also the gain/loss from selling them later in different tax forms. Let’s cover it.
Tax forms for crypto staking in the US
You need to report your crypto staking rewards in your US Individual Income tax return (Form 1040) on Schedule B (for interest)or Schedule 1.
If you later sell your staking rewards for a gain/loss, you’d need to report that crypto gain/loss on Form 8949 and Schedule D of Form 1040.
Discover more about reporting crypto taxes.
Tax rates for staking
The tax rate for staking will fall under the income tax level brackets in the US, depending on your total taxable income for the year. For 2023, these are the income tax levels for individuals filing in the US:
- 10%: $0 to $11,000
- 12%: $11,001 to $44,725.
- 22%: $44,726 to $95,375.
- 24%: $95,376 to $182,100.
- 32%: $182,101 to $231,250.
- 35%: $231,251 to $578,125.
- 37%: $578,126 or more.
How to calculate staking rewards?
Calculating the Fair Market Value (in USD) of staking rewards is not easy because you’ll likely receive multiple batches of rewards in the tax year, resulting in different cost bases.
This means that you need to determine the Fair Market Value at the exact moment you receive each of these batches. Without tracking this automatically, it’s hard to calculate the FMV of the amount of rewards you received correctly.
The best way to automate this process is to import your staking transactions into crypto tax software like CoinTracking, which can determine your income and the gains/losses if you sell your staking rewards later.
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How to reduce staking tax?
You can reduce your staking taxes at a capital gains level. There are a few ways to reduce your capital gains taxes, including:
- Holding your staking rewards for over 12 months before selling them
- Crypto tax loss harvesting
- Crypto wash sale rule
- Move to a crypto-tax-free country or crypto-friendly state
When you don’t have to pay taxes on staking
If you move cryptocurrencies from one personal wallet to another to stake those coins, you would not have a taxable event. When you stake the coins, you’ve also not generated any income, resulting in no taxes.
Every time you earn staking rewards, you’d have a taxable event, while selling any portion of your rewards will trigger capital gains taxes.
Staking taxes in other countries
Canada
Canada taxes crypto staking rewards similarly to the US, where you need to determine the Fair Market Value (in FIAT) of the rewards you receive when you receive them and report that as ordinary income.
Australia
Australiafollows a similar approach like the US and Canada by taxing crypto staking rewards at the income level, following a similar methodology.
UK
Crypto staking rewards are taxed in the UK according to their nature (income or capital gains) and taxed accordingly.
Frequently asked questions
about staking taxes in the US
Is there capital gains tax on staking?tiago2023-09-29T15:51:56+01:00
Is there capital gains tax on staking?
Yes, if you sell your staking rewards after receiving them, you’d need to report the gain/loss on those transactions and report them.
Are unsold staking rewards taxable?tiago2023-09-29T15:52:17+01:00
Are unsold staking rewards taxable?
When you receive crypto staking rewards, you need to report their FMV as income, but if you don’t sell them, you won’t have to pay capital gains taxes unless you sell any portion of your staking holdings.
How do you avoid taxes on crypto staking?tiago2023-09-29T16:11:31+01:00
How do you avoid taxes on crypto staking?
You cannot avoid taxes on crypto staking rewards, but you can reduce the taxes by holding your staking rewards for over 12 months before selling them, becoming eligible for a long-term capital gains tax rate ranging from 0% to 20%.
Do you need to report crypto staking rewards on taxes?tiago2023-09-29T16:10:51+01:00
Do you need to report crypto staking rewards on taxes?
You need to recognize the Fair Market Value (in USD) of the staking rewards you receive as rewards and include them in your income tax return. If you sell your staking rewards, you’d need to report your gains/losses on Form 8949 and Schedule D of Form 1040.
Do you have to pay taxes on staking crypto?tiago2023-09-29T15:53:26+01:00
Do you have to pay taxes on staking crypto?
Yes, earning crypto staking rewards is taxed at the income level, according to your income bracket, in the US, where you have to recognize the Fair Market Value (in USD) of each batch of staking rewards at the time you received them.
Conclusion
Recent announcements from the IRS clarified that staking rewards are taxable in the US, signaling to investors the need to be mindful of the tax consequences related to their staking transactions.
When you receive staking rewards, you’d get taxed at an income level, but if you later sell them, you’d also have to pay capital gains taxes, requiring different reporting across tax forms.
The easiest way to track your income and gains from crypto staking is to use a crypto tax tool like CoinTracking that automatically determines your income/gains and enables you to generate the right tax reports.
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Autor
Moritz
Crypto Tax Manager
Tax Expert, Webinar-Host, Content Creator, Crypto Enthusiast and Investor. Interested in everything regarding the crypto space.
Tax Expert, Webinar-Host, Content Creator, Crypto Enthusiast and Investor. Interested in everything regarding the crypto space.
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