What is Staking Rewards?
Cryptocurrency earned by validating blockchain transactions through proof-of-stake, taxed as ordinary income when received.
Definition
Staking rewards are cryptocurrency tokens earned by participating in a proof-of-stake blockchain's consensus mechanism, where you lock up your existing tokens to validate transactions and secure the network. The IRS treats staking rewards as ordinary income at fair market value when the taxpayer gains dominion and control over the rewards. When you later sell staking rewards, you also report capital gains or losses based on your cost basis (the value when received).
Who Needs to Know This?
Cryptocurrency holders who stake their tokens and earn rewards, including US expats participating in DeFi protocols or staking on exchanges abroad.
Key Deadline
Reported as income on annual tax return for the year rewards are received
Potential Penalties
Standard accuracy-related penalties for failure to report
Related Forms
Common Mistakes to Avoid
- 1Not reporting staking rewards as they are received throughout the year
- 2Using end-of-year values instead of value at time each reward is received
- 3Not tracking each staking reward event separately for cost basis
- 4Confusing staking income with capital gains
Related Terms
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