Blockchain & Crypto

IRS to Tax Crypto Staking Rewards

The Internal Revenue Service (IRS) has come up with taxation rules for those getting income from crypto staking

IRS to Tax Crypto Staking Rewards

The revenue service for the US Federal government – IRS – has published a new ruling explaining when and how crypto investors should file their income from staking.

According to the document, cryptocurrency investors who earn rewards for validation activity on a proof-of-stake blockchain network should count that as income in the taxable year when they get control of reward tokens. Getting control of cryptocurrency units means an ability to sell, exchange, or otherwise dispose of the tokens received as a reward for staking.

The latest tax guidance also applies to investors staking tokens through the intermediaries like crypto exchanges and staking platforms, if “the taxpayer receives additional units of cryptocurrency as rewards as a result of the validation.”

Crypto staking in a proof-of-stake consensus mechanism enables cryptocurrency holders to participate in the validation process by staking their crypto assets. In cases when the validation is successful, the validators receive crypto rewards. It is one of the most popular and profitable ways to earn passive income with cryptocurrencies in 2023.

However, the legal status of crypto staking in the US is still dubious. For instance, in February, the crypto exchange Kraken agreed to shut down its crypto-staking service to settle SEC charges. The reason is that the regulator considers crypto staking as a form of selling unregistered securities.

Brian Armstrong — CEO of cryptocurrency exchange Coinbase, was the first to raise concerns over the SEC potentially getting “rid of crypto staking in the U.S. for retail customers.” He noted that staking was an important innovation in crypto, allowing users to “participate directly in running open crypto networks.”

Nina Bobro

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Nina is passionate about financial technologies and environmental issues, reporting on the industry news and the most exciting projects that build their offerings around the intersection of fintech and sustainability.