Tax Example

ETH Staking: How the IRS Taxes Rewards

The IRS treats staking rewards as ordinary income — taxed at the fair market value when received, not when sold. This is a two-step process: first you owe income tax on the reward, then capital gains tax when you eventually sell the coins.

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My Staking

CoinEthereum (ETH)

PeriodJanuary – December 2024

Rewards Received0.06 ETH total

FMV at Receipt$180 total

Avg. ETH Price~$3,000 / ETH

The Two-Step Tax Process

Phase 1 — When received

Ordinary Income

FMV at time of receipt is taxed as ordinary income. Reported on Schedule 1 (Additional Income).

Phase 2 — When sold

Capital Gain / Loss

Difference between sale price and FMV at receipt is a capital gain or loss. Short-term or long-term depending on holding period.

Step 1Income tax at the time of receipt

Each reward payment is taxable as ordinary income when received:

Total staking rewards: 0.06 ETH × FMV at receipt: × $3,000 / ETH ───────────────────────────────────── Ordinary income: $180 Tax at 22% bracket: $180 × 22% = $39.60 Tax at 24% bracket: $180 × 24% = $43.20

→ $180 is reported as "Other Income" on Schedule 1 of Form 1040 Unlike Germany's €256 threshold, there is no minimum exemption in the US — all staking income is taxable.

Step 2Cost basis of the received coins

The FMV at receipt becomes your cost basis for the staked ETH. This is important for when you eventually sell those coins.

Cost basis of 0.06 ETH: $180 (= FMV at time rewards were received)

Step 3Capital gains tax when you sell the staked ETH

Example: You sell the 0.06 ETH on March 15, 2026 for $300.

Sale price: $300 – Cost basis: - $180 ──────────────────────── Capital gain: $120 Held from receipt (2024) to sale (2026) = >1 year → Long-term capital gain: $120 × 15% = $18

Holding the staked coins for over a year reduces the rate on the gain from ordinary income rates to 0–20%.

Result — Year 2024

Staking Income$180

Tax TypeOrdinary Income

Estimated Tax (22%)~$39.60

Minimum ExemptionNone (IRS)

Report OnSchedule 1 / Form 1040

Plus state taxes: Most states also tax staking rewards as ordinary income on top of federal tax. California adds up to 13.3%, New York up to 10.9%. States like Florida, Texas, and Wyoming have no state income tax on staking income.

Jarrett v. United States (2022): A Tennessee couple argued staking rewards should not be taxable until sold. The IRS refunded their taxes to avoid a court ruling. The law remains unsettled — consult a tax professional for large staking positions.

Frequently Asked Questions

What if I receive dozens of small staking rewards throughout the year?

Each reward is a separate taxable event with its own FMV. Most tax software (CoinTracker, Koinly, etc.) handles this automatically by importing your staking history and calculating each reward's FMV at receipt. Track all of them — even small ones add up.

Is liquid staking (stETH, rETH) taxed the same way?

The IRS has not issued specific guidance on liquid staking tokens. The general view is that receiving stETH in exchange for ETH may be a taxable disposal (crypto-to-crypto swap). This is an area of ongoing uncertainty — conservative treatment would recognize income at each rebasing event.

What if I can't determine the FMV of each reward at receipt?

The IRS requires you to report the FMV at the time of receipt. Most exchanges provide transaction history with USD values. If records are unavailable, use the closing price from a reputable source (CoinGecko, CoinMarketCap) on the date of receipt.

Also interesting

ETH sale — when does the long-term rate apply? → ₿ What happens if you sell too early? → ? Staking tax — all questions answered →

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