‘Stake and Pay’: IRS Declares Staking a Taxable Event

Staking rewards are now classified as gross income.

A bear in a black tax man suit approaching a couple chilling in their stake pool.
Created by Gabor Kovacs from DailyCoin
  • The IRS has issued a ruling on crypto staking rewards.
  • Staking rewards are now classified as gross income.
  • The ruling will impact millions of crypto investors in the US.

In a ruling released Monday, July 31st, the U.S. Internal Revenue Service (IRS) has mandated that crypto investors must report crypto staking rewards as gross income and remit taxes accordingly. The tax authority enacted the writ in line with Revenue Ruling 2023-14.

Staking Rewards Officially Classified as Gross Income

The IRS defines gross income as wages, dividends, capital gains, or business income. In the new writ, this has been extrapolated to include direct gains realized from staking rewards, subject to taxation once the holder has dominion and control over the tokens.

“If a cash-method taxpayer stakes cryptocurrency native to a proof-of-stake blockchain and receives additional units of cryptocurrency as rewards when validation occurs, the fair market value of the validation rewards received is included in the taxpayer’s gross income in the taxable year in which the taxpayer gains dominion and control over the validation rewards,” the ruling reads.

The impact of the ruling cuts across the board. To date, the U.S. has the highest number of crypto investors in the world, with recent statistics estimating that around 50 million residents in the country are crypto holders.

Is Staking the Major Point of Contention for the IRS?

The ruling is not the IRS’s first contact with crypto staking. On June 30th, 2023, a federal judge ordered Kraken to turn over the names of users, including pseudonyms, behind accounts that had transacted at least $20,000 worth of crypto within any one year for the period between January 1, 2016, and December 31, 2020.

Kraken refused to comply, asserting that the IRS is after something “much broader than what is necessary.” 

Should you be worried about the taxman? Read: 

Crypto Tax: Basics You Need to Know Before Buying Your First Cryptocurrency 

Stay updated on how President Biden’s administration is zeroing down on crypto tax loopholes: 

Biden Targets Crypto Tax Loopholes. Community Left Confused

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Brian Danga

Brian Danga, a Kenyan crypto reporter, is dedicated to delivering breaking news and updates from the cryptocurrency world. With a background as a Web3 writer and project manager, he recognizes the importance of unbiased reporting. Holding an LLB degree from the University of Nairobi, Brian's analytical skills contribute to his accurate news reporting. His personal interests include cooking, watching documentaries, reading, and engaging in intellectual discussions.