How is Staking Taxed? | Everything You Need to Know

Staking digital assets becomes a trend after learning the action can be beneficial for the holders. It is widely known that staking will guarantee you rewards, making people rethink their decisions on what to do with their assets. While it is tantalizing, asset holders often miss out on the responsibility of staking. Many countries across the world are obligated to pay taxes on their staking assets, such as the United States, Australia, Germany, and Indonesia. 

This article helps you grasp everything you need to know about staking, how it is taxed, and how to report assets to be taxed to prevent you from getting audited in the future. 

What is staking?

Staking is derived from the word “Stake” which means to put something a risk. Instead of giving away to bet, the risk in staking is placed on the holders. Holding assets means putting them at risk. However, your bravery will be rewarded as you’re indirectly helping to maintain the network.

To put it simply, stacking is the act of holding onto your digital assets to which it helps maintain the network, and in return for the aid, some rewards await.

As stated earlier, stacking implies digital assets, such as cryptocurrency which were where the term originated from. The arrival of Bitcoin popularized the term among finance people who had been actively participating in the stock markets. Much like physical assets that have to oblige to tax and law, digital assets offer no distinction.

How is staking taxed?

Generally, a tax is defined as a sum of money that is essential to be remitted by the citizens to the government to maintain the country’s programs, such as education, healthcare, infrastructure, and not limited to, national defense. Tax is considered obligatory for citizens with a minimum salary, depending on the law of each country, including those who are self-employed. 

Cryptocurrency is not just about buying. In addition to that, cryptocurrency lets you move your asset, transform it, and even generate it, making it a dynamic asset rather than just limited to transactions. For this reason, holding digital assets like cryptocurrency requires you to be taxed. Cryptocurrency owners fall into two categories based on how they are generated, capital gains and ordinary income. It is essential to know what will you be charged tax for. 

Capital Gains Vs Ordinary Income

Asset holders who don’t have official jobs are still required to pay taxes. Their activities in investing, including buying, selling, and exchanging, are considered as a way to gain income. If a crypto holder invested 1000 coins and it rose to 3000, it is considered a capital gain only if they sell the asset. The amount of income collected from the investment is obligated to be reported for tax once the asset is sold and profit is made.

Similarly, any action that triggers taxable events, such as mining and employment, is expected to pay tax. Crypto owners who hold onto their digital investments to gain rewards are no exception to reporting their income to the government. However, sometimes they cannot use the rewards right away. In this case, the Internal Revenue Service (IRS) may offer a leeway to pay tax only after the rewards are received and can be accessed.

When engaging in staking, asset holders can consider which route they are going to. Short-term holders are referred to as those who hold their assets for less than a year. While it has its cons (for instance, they generate higher rates of tax) it is arguably safer than staking it longer. Staking means putting your assets at risk, so while its pros are quite enticing, like earning more rewards, you’re still taxed on the staking rewards as ordinary income, not capital gains. Regardless of whether you’re a short-term or a long-term holder, you are required to pay tax.

To sum it up, crypto owners who generate revenue from selling the coins once the price rises will be taxed as a capital gain. On the other hand, crypto holders who stake their coins to generate rewards will be taxed as an income tax. 

Can you avoid getting taxed for staking?

IRS considers crypto as one of your wealthy assets, hence why it is inevitable not to be taxed. As stated earlier in the article, the IRS has guidelines on how to respond to staking. According to Revenue Ruling 2023-14, once you’re in a dominion and control state, where you have fully acquired the rewards from staking and are at liberty to do anything, you are obliged to pay tax.

It may cross your mind to skip paying tax; after all, the blockchain universe is anonymous. However, considerable trades such as Coinbase transfer your data, including ownership and income records, to the IRS. This situation doesn’t exactly put you in anonymity, meaning it cannot protect you from getting tracked down. The fact is, that the IRS can carry out several fines under the tax fraud category and you are left with one option, that is to pay the tax. 

How to report staking tax?

As much as you’re involved in the finance-technology field, reporting tax will always be a hassle no matter how many years you’ve been in it. The process stays complex, especially when digital assets like cryptocurrency come into the picture.

That’s why it’s important to be familiar with what you’ll be dealing with. Knowing which forms to use and how your activities are categorized can help you prepare better and avoid unnecessary issues when it’s time to report.

Form 1099-MISC

Before we dive into the step-by-step process of reporting staking tax, it’s important to know which form you’ll be filling out. There are different tax forms for reporting digital assets, and the one you need depends on the activities you’re doing on the blockchain. For example, Form 1099-MISC is used for staking.

Form 1099-MISC is typically given to individuals or business owners who earn at least $600 in miscellaneous income. This includes people who don’t have a regular income, like renters, musicians, prize winners, and of course, those who stake their coins.

Compile Tax Documents

The first and most important step is to gather all your tax documents that are required, this includes all your transaction records. By all, it means every taxable event you have experienced, such as selling, trading, spending, and staking awards. You can manually compile the transaction data, or if it’s too much of a hassle, there are tools available to save you time like CoinTracker or BitcoinTax. 

As mentioned before, the next step is to fill in the 1099-MISC form. If you are staking just for the rewards, you can report on Schedule 1 by checking the Other Income category. However, if you are doing staking as a business, you need to report on Schedule C. 

Calculate Staking Rewards 

Once you’ve figured out which schedule you fall under, the next step is to calculate your total staking rewards. This is done based on the fair market value of the crypto at the time you received it. Not when you staked it, not when you sold it, just when the reward landed in your wallet and you had full control over it. That amount is what gets reported as income.

After that, if you eventually decide to sell the rewards you earned from staking, you’ll need to track how much they’ve increased or decreased in value since the day you received them. That difference is considered a capital gain or loss, and it needs to be reported separately.

If You Decide to Sell Staking Rewards

So how exactly is staking taxed? To put it another way, the moment you collect your staking rewards, that’s already considered income. The value that gets reported is based on the fair market price of the crypto at the exact time it hits your wallet. Not when you staked it, not when you plan to use it, just the moment it officially becomes yours and you have control over it.

In many cases, some crypto holders end up selling the rewards from staking. This situation requires you to report, not only ordinary income but also capital gains (or losses). This part is based on how much the price changed between the time you received the reward and the time you sold it. To sum it up, one reward can lead to two separate tax events: one for the income, and one for the gain.

Imagine you earn $200 worth of Solana from staking. You hold onto it for a while until it rises to $250. Later on, you decide to sell it. In this situation, you need to report $200 as ordinary income by the time you received it, and also $50 as capital gain based on the price difference when you decided to let it go. 

Conclusion

Staking might sound simple on the surface, lock your coins to earn rewards, but the tax implications are far from effortless. Once you decide to take part in staking, whether as a hobby or a more consistent activity, it automatically opens the door to new responsibilities, especially in the eyes of the law. The rewards you gain aren’t just yours to keep quietly; they need to be reported, categorized, and calculated correctly.

The tricky part is that staking creates more than one tax obligation. You’re not only expected to report the income when the reward is received, but also to calculate any gains or losses if you decide to sell the rewards later on. That’s why understanding the difference between ordinary income and capital gains is crucial. You don’t want to confuse the two and end up with errors on your tax return.

Knowing what forms to fill, when to report, and how to organize your transaction data is the first step to staying compliant. Even though it’s a hassle, especially with how crypto works across multiple platforms and wallets, the reality is—keeping things clean now will save you more time (and stress) later.

At the end of the day, staking is still an investment. And just like other investments, it comes with risks, responsibilities, and tax rules that you can’t really escape from. Understanding how it works from a tax perspective helps you make better decisions—not just about how you earn, but also how you plan ahead.