How do I report crypto staking rewards on my taxes? Got $18K in ETH staking but unclear on IRS treatment

I've been staking ETH since early 2024 (post-merge). Over the course of 2025, I've earned approximately 3.2 ETH in staking rewards, which was worth about $18,000 when I received it (price fluctuated throughout the year).

I haven't sold any of the staking rewards - they're all still sitting in my staking wallet. But I'm trying to figure out how to report this on my 2025 taxes.

Questions:

• Are staking rewards taxed as ordinary income when received, or only when I sell them?
• Do I report the value at the time I received each reward, or can I use year-end value?
• If I later sell the ETH rewards, do I also owe capital gains tax on any appreciation?
• What forms do I need? Schedule C? Form 8949?

My regular job income is about $95K, so this could push me into a higher tax bracket. Trying to understand my total tax liability here.

Been through this. The IRS treats staking rewards as ordinary income at the time of receipt (when you gain control of them), valued at their fair market value on the date received.

So if you received 0.1 ETH in staking rewards when ETH was $3,500, that's $350 of ordinary income. You owe income tax on that $350 based on your tax bracket.

Then, when you eventually sell those staking rewards, you calculate capital gains/losses based on the difference between sale price and the value when you received them (your "cost basis").

It's double taxation basically - income tax when earned, then capital gains when sold if the price went up.

CPA specializing in crypto here. The treatment described above is correct based on current IRS guidance.

Per Rev. Rul. 2023-14, the IRS confirmed that staking rewards are taxable as ordinary income in the year you gain "dominion and control" over them. This means the moment the rewards hit your wallet and you can sell/transfer them.

For your situation:

1. Calculate income for each reward event: You need to determine the fair market value of ETH at the moment you received each staking reward
2. Report as "Other Income": On Schedule 1, Line 8z of Form 1040
3. Track cost basis: The FMV when received becomes your cost basis for future capital gains calculations
4. When you sell: Report on Form 8949 and Schedule D, calculating gains/losses vs. your basis

Since you earned roughly $18K, that's $18K added to your $95K salary = $113K taxable income for federal purposes.

This is painful. So I owe taxes on $18K of income even though I haven't sold anything and don't have cash to pay the taxes?

I receive small staking rewards almost daily. How am I supposed to track the exact ETH price at the moment each tiny reward hit my wallet? There are probably 200+ separate reward events throughout the year.

Is there any software that automates this tracking? Or do I need to manually go through every single transaction?

You definitely need crypto tax software for this. Trying to track 200+ staking events manually is insane.

Popular options:

• CoinTracker: Imports from most exchanges/wallets, calculates cost basis, generates tax forms
• Koinly: Good for staking tracking, integrates with Ethereum validators
• TokenTax: More expensive but handles complex DeFi scenarios
• ZenLedger: Similar features, good UI

These tools import your wallet transactions, identify staking rewards, pull historical price data, and calculate your income and cost basis automatically. Cost is usually $50-$200 depending on transaction volume.

You'll want one that specifically supports Ethereum staking rewards and can handle your validator address.

Just a heads up - you might also owe self-employment tax on top of income tax if the IRS considers your staking activity a "business."

There was a case (Jarrett v. United States) where a couple argued staking rewards shouldn't be taxed until sold, but they lost. IRS is pretty firm on the "tax at receipt" position now.

The one silver lining: if you're holding the staking rewards long-term and they appreciate, at least the appreciation gets taxed as long-term capital gains (lower rate) when you eventually sell.

On the self-employment tax question: Generally, casual staking as a passive investor is NOT subject to SE tax. You'd only worry about SE tax if you're running a staking-as-a-service business.

For a typical ETH staker just earning rewards on their own holdings, treat it as ordinary income (like interest or dividends), not self-employment income. Report on Schedule 1, not Schedule C.

However, if you're running validator nodes for others, pooling stakes, or operating a staking service, that could be considered a business subject to SE tax. Doesn't sound like your situation.

Re: liquidity concern - yes, this is the crypto tax trap. You owe tax on income you received in crypto form, but you may not have cash to pay the tax. Options:

• Sell enough crypto throughout the year to cover estimated taxes
• Pay quarterly estimated taxes to avoid underpayment penalties
• Keep cash reserves for tax season

Okay, I signed up for Koinly. Connected my wallet and it imported all my staking transactions. Shows total income of $17,842 from staking rewards received throughout 2025. Close to my estimate.

At my income level ($95K + $18K staking = $113K), I'm looking at about 24% federal tax bracket, so roughly $4,300 in federal taxes on the staking rewards alone. Plus state taxes (I'm in California, so another ~9%).

Brutal. I might need to sell some of the staked ETH just to pay the taxes on earning it. Is there any way to minimize this? Like reporting it differently or deferring?

Unfortunately no way to defer. The IRS position is clear - it's income when received, regardless of whether you sell.

Only way to minimize going forward:

1. Max out retirement accounts: If you have access to 401k/IRA, maxing those reduces your taxable income
2. Harvest tax losses: If you have other crypto that's down, sell it to realize losses to offset the staking income
3. Quarterly estimated payments: Pay throughout the year to avoid underpayment penalties (already too late for 2025 Q4)
4. Consider staking less: If the tax burden is too painful, reduce your staking activity

For 2026, I'd recommend setting aside ~35% of staking rewards (federal + state + safety margin) immediately when you receive them. Either sell that percentage or keep it liquid for taxes.

Welcome to crypto taxation - it's a mess and heavily debated, but this is the current reality under IRS guidance.

Appreciate all the help. Going to work with a crypto-focused CPA for the actual filing to make sure I do this right.

Lesson learned: crypto tax law is not intuitive at all. The "you owe taxes on unrealized gains" aspect of staking rewards is something I totally didn't understand when I started staking.

For anyone else reading this - set aside tax money as you earn staking rewards. Don't make my mistake of thinking you only owe taxes when you sell.