Crypto Staking Taxes: How Staking Rewards Are Taxed in 2026
If you earn crypto by staking, the IRS wants its cut the moment the rewards land in your account, not years later when you finally sell. That single timing rule trips up more stakers than anything else in crypto tax, and a brand-new Tax Court decision just put it under a spotlight.
Here’s the short version: staking rewards are ordinary income, taxed at their fair market value on the day you gain control of them. Then a second tax event happens later when you sell. On June 4, 2026, the Tax Court handed down its first-ever merits decision on the question in Paschall v. Commissioner, and it backed the IRS. But the ruling is narrower than the headlines suggest, and a separate case still working its way through the courts could reopen part of it.
This guide walks through exactly how staking is taxed, what Paschall settled (and what it pointedly did not), how to report it without overpaying, and where the genuinely unsettled edges are. It’s reviewed by a US CPA, and we’ll flag clearly where you’re standing on solid ground versus where you need a professional opinion.
Staking rewards are taxed as ordinary income the moment you can control them, one of several income triggers covered in our guide to how crypto is taxed.
How are crypto staking rewards taxed?
Under IRS Revenue Ruling 2023-14, staking rewards are included in your gross income at their fair market value (FMV) on the date you gain “dominion and control” over them. In plain terms: the moment you could sell, transfer, or spend the reward, its dollar value at that moment becomes ordinary income, whether or not you actually touch it.
That value is taxed at your ordinary income tax rate, the same brackets that apply to your salary, not the lower long-term capital gains rates. (For a full breakdown of those rates, see our guide to the crypto tax rate.)
But that’s only the first of two taxable moments. Staking rewards get taxed once as income when received, and then again as a capital gain or loss when you eventually dispose of them.
| Event | When | Tax treatment | Taxed on |
|---|---|---|---|
| You receive a staking reward | Date you gain dominion and control | Ordinary income | Full FMV of the reward at receipt |
| You later sell, swap, or spend it | Date of disposal | Capital gain or loss | Difference between sale price and your receipt-date FMV |
The receipt-date FMV does double duty: it’s your income today, and it becomes your cost basis for later. That basis is the key to not getting taxed twice on the same dollar, which is the single most common question stakers ask.
Are staking rewards taxed twice?
No, not on the same value, as long as you track your basis correctly.
Say you receive 1 ADA worth $0.50 as a staking reward. You report $0.50 of ordinary income now. That $0.50 also becomes your cost basis. If you later sell that ADA for $0.80, you only pay capital gains tax on the $0.30 of appreciation, not the full $0.80. The original $0.50 was already taxed as income, so it isn’t taxed again.
Where people genuinely overpay is by losing track of basis. If you forget to record the $0.50 receipt value, tax software often defaults your basis to zero, and you end up paying capital gains tax on the entire $0.80. Across a year of daily or weekly rewards, that bookkeeping gap can inflate your bill by thousands. The “double tax” myth is almost always a basis-tracking failure, not the law.
Bottom line: you are taxed at two different events on two different amounts (income at receipt, gain at sale), never twice on the same dollar.
What Paschall v. Commissioner means for stakers
In Paschall v. Commissioner, T.C. Memo. 2026-46, the taxpayers received $33,354 in Cardano staking rewards through eToro in 2021 and argued they shouldn’t owe tax at receipt. They ran three theories. The Tax Court rejected all three:
- “Transfer restrictions meant we didn’t have control.” Rejected. The court found the Paschalls could sell their rewards for cash at any time, and the power to dispose of income is the equivalent of owning it. That’s enough for dominion and control.
- “Staking rewards are like a tax-free stock dividend.” Rejected. A tax-free stock dividend doesn’t change your proportional ownership. Staking rewards increased the Paschalls’ share of total Cardano in circulation, so the analogy fails.
- “Rewards are self-created property, taxable only when sold.” Rejected. The court reasoned that stakers don’t create the rewards; the protocol does. This is the same theory at the heart of the Jarrett litigation, and for custodial stakers, Paschall effectively closes the door on it.
The court grounded all of this in Section 61 (“gross income means all income from whatever source derived”) and the Supreme Court’s Glenshaw Glass standard. As CTME’s reviewing CPA Michael Bergloff puts it: “The §61 foundation is now settled for custodial stakers. Everything else is still being written.”
Important caveat we won’t bury: Paschall is a T.C. Memo, not a precedential Tax Court opinion, and it was a pro se case (the taxpayers represented themselves) decided on stipulated facts. It’s a strong signal of how the Tax Court sees the issue, but it is not binding precedent. Don’t let anyone tell you the question is closed.
What Paschall does NOT settle
This is where most coverage stops and where the real value is. Paschall addressed exactly one fact pattern: passive, custodial staking through a centralized platform. It leaves several genuinely open questions, and if your situation looks different from the Paschalls’, the answer may not be the same.
- Mining. Proof-of-work miners who operate their own nodes still have a colorable self-created-property argument. Paschall doesn’t touch it. (Mining income has its own guidance under Notice 2014-21; see our note on how mining is taxed.)
- Liquid staking. Receiving stETH or cbETH in exchange for staked ETH is a fundamentally different transaction: you’re receiving a derivative token, not a direct reward credit. Paschall says nothing about it. (More below.)
- Wrapped tokens. wBTC, wETH, and similar wraps have no dedicated court precedent, and Paschall doesn’t address their disposition.
- Airdrops. The dominion-and-control framework applies directionally, but locked tokens, vesting cliffs, and unsolicited drops still sit under weaker 2019 guidance with no Tax Court ruling.
- Solo vs. delegated staking. The Paschalls used a pooled, custodial service. Independent validators running their own nodes were not at issue, and their facts are meaningfully different.
And the big one on the horizon: Jarrett v. United States. After the IRS mooted the Jarretts’ first case by issuing a refund, they refiled on October 10, 2024 (docket 3:24-cv-01209, M.D. Tenn.) for the 2020 tax year, directly challenging Rev. Rul. 2023-14 on the self-created-property theory for a validator running their own node. That case is still pending and is the one to watch for definitive guidance on non-custodial staking.
What this means for your prior-year returns: Bergloff’s guidance is straightforward. If you reported staking income at receipt in past years, you’re aligned with both the IRS position and Paschall. If you took a different position, this is not the moment to scramble to amend in either direction. As he advises CTME clients: sit tight until Jarrett reaches a merits ruling and we have definitive guidance for non-custodial stakers, rather than chasing an unsettled question with an amended return now.
How to report staking rewards on your taxes
The IRS treats crypto as property and tracks it through the digital asset question on your return. Mechanically, reporting happens in two places, matching the two taxable events:
| What you’re reporting | Form | Notes |
|---|---|---|
| Staking rewards as income (at receipt) | Schedule 1 (Form 1040), line 8v (“digital assets received as ordinary income”) | Report total FMV of all rewards received during the year. A platform may send a 1099-MISC. |
| Selling/swapping rewards later | Form 8949 + Schedule D | Capital gain or loss vs. your receipt-date basis. See our how to file crypto taxes guide. |
| Staking as a trade or business | Schedule C | If you stake as a business (e.g., a professional validator operation), rewards are business income and may be subject to self-employment tax. |
Most individual stakers report on Schedule 1 as an investor. The 1099-MISC point matters: if a platform like Coinbase or eToro sends you a 1099-MISC for staking, the IRS received a copy too. Bergloff’s rule for custodial stakers is simple: if you receive a 1099-MISC for staking rewards, report it as income. Leaving it off is the fastest way to trigger an automated underreporting notice.
How we actually value a year of staking rewards
The hard part of staking isn’t the rule, it’s the arithmetic. A single account can generate hundreds or thousands of micro-rewards across a year, and each one needs a fair market value at its own moment of receipt. Competitors tell you to “record the value.” Here’s how it’s actually done.
The most practical method is to use crypto tax software to label the inbound transactions as staking rewards. The software’s price feed assigns the fair market value at the timestamp of each reward, books the total as ordinary income, and pushes that figure to Schedule 1. Your receipt-date FMV is captured automatically as the cost basis for each lot, so when you later sell, the gain is calculated against the right number and you don’t get taxed twice.
The catch is that software only gets this right if every reward is labeled correctly and every wallet and exchange is connected. Mislabeled rewards, missing accounts, or transfers the software reads as taxable sales are exactly the errors we clean up before a return is filed. Reconciling that data accurately, across every platform you used, is the work that protects you in an audit, and it’s the core of what our US crypto tax accountants do for staking-heavy clients.
Liquid staking (stETH, cbETH): taxable swap or not?
This is the highest-stakes open question for active stakers. When you stake ETH through a liquid staking protocol and receive stETH or cbETH in return, is that a taxable disposal of your ETH?
Crypto tax software treats it as a taxable trade by default — it sees one token leave and another arrive, and books a disposal. But there’s a defensible argument that receiving a liquid staking token is more like a non-taxable wrapper or receipt token than a true exchange, because you retain economic exposure to the same underlying ETH.
This is genuinely unsettled, and the conservative default (treat it as taxable) is the safe path. But where the facts support it, Michael Bergloff, CPA can write a tax opinion letter to support treating the transaction as a non-taxable swap. That’s a position to take deliberately, with documentation, not something to toggle in your software on a hunch.
And it is emphatically not something to outsource to an AI chatbot. We’re seeing a wave of taxpayers lean on LLMs to justify aggressive positions, and as Michael Bergloff, CPA, puts it, it tends to end badly:
“We often see taxpayers who are using LLMs as ‘tax advisors’ to help them justify aggressive tax opinions. In one case, someone facing an audit handed us a tax opinion letter created by ChatGPT that cited a source which did not back their opinion, and even linked to a broken IRS page. As we saw with the Paschalls representing themselves in Tax Court, it’s important to consult a licensed tax professional before building your own tax strategy. That at least helps you avoid significant penalties and interest.”
If you’re doing meaningful volume in liquid staking, it’s worth a conversation with a real CPA. (For the broader framework, see our DeFi tax guide.)
How to pay less tax on staking rewards
You can’t avoid the income tax at receipt, but you can manage what happens next:
- Hold for long-term gains. The income at receipt is fixed, but any appreciation after receipt qualifies for lower long-term capital gains rates if you hold the reward more than a year before selling.
- Harvest losses against the gains. If some rewards fall in value after receipt, selling them can generate capital losses to offset other gains. See crypto tax loss harvesting.
- Track basis obsessively. As covered above, the most common overpayment is lost basis, not the income tax itself.
For the full set of legitimate strategies, see our guide on how to avoid crypto tax the right way.
Frequently asked questions
Do you have to pay tax on staking rewards?
Yes. In the US, staking rewards are ordinary income at their fair market value on the date you gain control of them, per IRS Revenue Ruling 2023-14, a position the Tax Court backed in Paschall v. Commissioner (2026) for custodial stakers.
Are staking rewards taxed twice?
No, not on the same value. You pay ordinary income tax on the reward’s value at receipt, and that value becomes your cost basis. When you later sell, you only pay capital gains tax on the appreciation above that basis. Apparent “double taxation” is almost always a basis-tracking error.
How do I calculate staking rewards for taxes?
Add up the fair market value of every reward at the moment you received it. Crypto tax software with an accurate price feed does this automatically if you label the transactions as staking income and connect all your wallets and exchanges.
Are staking rewards classed as ordinary income?
Yes, they are taxed at your ordinary income rate at receipt, not the lower capital gains rate. Only the later appreciation, if you hold and sell, is taxed as a capital gain.
Do I have to report staking rewards under $600?
Yes. The $600 figure is a threshold for whether a platform must issue you a 1099, not a threshold for whether the income is taxable. All staking income is reportable regardless of amount.
Do you pay taxes on staking before withdrawing?
Generally yes. Tax is triggered when you gain dominion and control over the reward (when you could move or sell it), not when you withdraw to a bank. If rewards are genuinely locked and you cannot access them, the income event may be deferred until they unlock.
Sources and further reading
- IRS Revenue Ruling 2023-14 (staking rewards taxable at receipt)
- IRS Notice 2014-21 (mining and digital asset income)
- Paschall v. Commissioner, T.C. Memo. 2026-46 (June 4, 2026)
- Jarrett v. United States, No. 3:24-cv-01209 (M.D. Tenn., filed Oct. 10, 2024)
- IRS Digital Assets hub
About the author and reviewer
Founder of Crypto Tax Made Easy. Matt has worked in crypto tax since 2017, leading reconciliation work across DeFi, cost basis cleanup, exchange tax forms, and tax software reviews. CTME has reconciled 6.7M+ transactions for 1,410+ investors, and Matt has appeared with Binance and spoken at the Australia Crypto Convention.
US tax reviewer for CTME content that includes IRS or state tax implications. Michael reviews US tax treatment, reporting, and compliance references.
Disclaimer: The information provided by Crypto Tax Made Easy is for general informational purposes only and does not constitute professional, financial, accounting, or tax advice. Consult a qualified professional about your specific situation.