The IRS or Internal Revenue Service has just released a tax ruling that impacts crypto investors in UNITED STATES. From now on, crypto staking rewards must be declared as gross income.
Crypto staking in the US: Here are the new rules from the IRS
Admittedly, bitcoin mining was already considered taxable income. Nevertheless, crypto staking rewards were not yet subject to the same rules. The recent IRS tax ruling 2023-14 therefore changes the situation.
According decision of the IRS, taxpayers must report staking rewards as gross income in the year they receive them. This new rule applies to those who participate in the validation of transactions on PoS blockchains (whether directly or via a CEX).
In concrete terms, here are the essential points to remember:
- Include fair market value of crypto staking rewards in annual income.
- Determine this value at the time the investor gains control and dominance over the rewards.
Note: The term “dominance” refers when the investor has the ability to sell, trade or dispose of the rewards crypto staking.
As for accrued (but locked) rewards, they will not be taxable until the investor can exercise that dominance and control over them.
Mixed reactions within the crypto community
“The IRS decision makes it difficult for accounting professionals to understand because crypto staking rewards will only be taxable once they can be sold”says Danny Talwar, chief tax officer at Koinly.
According to Ryan Selkis, founder of Messari, the IRS treats crypto staking like stock dividends. This raises questions about the equivalence of these two types of income.
For his part, Fried Frank’s tax partner Jason Schwartz expresses his disappointment. “The notion of payer traditionally associated with income taxation is not as clear in the case of crypto staking,” he points out. This makes it difficult to apply this new tax rule.
Either way, crypto investors will now have to comply with new tax obligations if they want to stake cryptocurrencies.
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