IRS Announces Taxation of Crypto Staking Rewards: What You Need to Know
The IRS has officially addressed the taxation of cryptocurrency staking rewards, clarifying how these earnings will be treated for tax purposes. This announcement has significant implications for anyone participating in proof-of-stake (PoS) blockchain networks.
IRS Clarifies Crypto Staking Rewards Taxation
To address the tax implications for taxpayers who stake cryptocurrency on a proof-of-stake blockchain and receive validation rewards, on July 21 the Internal Revenue Service released new guidance. This guidance aims to provide clarity and consistency in the treatment of staking rewards.
Revenue Ruling and Staking Rewards
The IRS recently issued essential guidance in Rev. Rul. that sheds light on the taxation of rewards received through staking cryptocurrency on proof-of-stake. This ruling is crucial for understanding your tax obligations when earning rewards through staking.
In Revenue Ruling, the IRS has ruled that staking rewards must be included in gross income for the taxable year in which the taxpayer acquires dominion and control of the awarded cryptocurrency.
Key Takeaways from the IRS Ruling
- Staking Rewards are Taxable Income: The IRS has confirmed that rewards earned through staking are considered taxable income.
- Cash-Method Taxpayers: In Revenue Ruling, the IRS has ruled that rewards received by a cash-method taxpayer “staking” cryptocurrency in connection with validating blockchain transactions must be included in gross income.
- Dominion and Control: The key factor determining when these rewards are taxed is when the taxpayer gains dominion and control over the cryptocurrency rewards. This generally means when the rewards are accessible and transferable.
What This Means for Crypto Stakers
If you're staking cryptocurrency, it's important to keep accurate records of the rewards you receive. This includes the date you gained control of the rewards and their fair market value at that time. Consult with a tax professional to ensure you're complying with all IRS regulations.
Stay Informed
The taxation of cryptocurrency is a complex and evolving area. Stay updated on the latest IRS guidance and seek professional advice to navigate these regulations effectively.