Educational-use notice
This guide provides general U.S. federal tax information, not individualized tax, legal, accounting, or investment advice. Staking arrangements vary widely — lock-up terms, custody structure, and token mechanics all affect the analysis. Litigation on this topic is ongoing and guidance may change. Consult a qualified tax professional before making decisions based on this content.
Key Takeaways
- Under Revenue Ruling 2023-14, staking rewards are ordinary income at fair market value when a cash-method taxpayer obtains "dominion and control" over them — generally when the rewards can be sold, transferred, or otherwise used.
- Exchange-based staking rewards are usually credited and immediately usable, so income is typically recognized close to the credit date. Self-custodied validator staking often involves bonding or unbonding delays that can push the taxable event later.
- Jarrett v. United States, a second lawsuit filed in October 2024, is pending in the U.S. District Court for the Middle District of Tennessee with a trial scheduled for September 2026. It has not changed the IRS's settled position.
- A 2025 U.S. Tax Court memorandum decision (Paschall) held staking rewards taxable upon receipt, consistent with Revenue Ruling 2023-14, though it is not binding precedent and involved disputed stipulated facts.
- The fair market value recognized as staking income becomes the taxpayer's cost basis in the reward tokens and starts a new holding period, which matters when those tokens are later sold, swapped, or spent.
- The IRS has not issued specific guidance on liquid staking receipt tokens (such as stETH or rETH). Whether the initial deposit is a taxable swap or a nontaxable receipt, and how rebasing versus exchange-rate reward models affect timing, remain open questions.
- None of this changes based on whether the reward's market price later rises or falls — the income amount is fixed at the fair market value on the date dominion and control were obtained.
What Counts as a "Staking Reward"?
Proof-of-stake blockchains pay validators — and, by extension, the users who delegate or lock assets to those validators — newly issued tokens, transaction fee shares, or both, in exchange for helping secure the network. "Staking reward" is used loosely across the industry to describe several different arrangements: running your own validator node directly on a chain; delegating tokens to a third-party validator while keeping custody; depositing assets with a centralized exchange's staking product; or depositing assets into a liquid staking protocol that issues a receipt token in return.
These arrangements share an economic feature — the taxpayer ends up with more tokens, or a token whose value reflects accumulated rewards, than they started with — but they differ in custody, timing, and contractual structure. Those differences matter because the IRS's staking guidance turns on when the taxpayer obtains control over the reward, not simply on the fact that a reward was earned.
The IRS Position: Revenue Ruling 2023-14
On July 31, 2023, the IRS released Revenue Ruling 2023-14, addressing a taxpayer who validated transactions on a proof-of-stake blockchain and received additional units of the native cryptocurrency as validation rewards. The ruling concluded that the fair market value of those reward units is included in the taxpayer's gross income for the taxable year in which the taxpayer gains dominion and control over the rewards.
Dominion and control generally refers to the point at which the taxpayer has the practical ability to sell, exchange, or otherwise transfer the reward units. In the fact pattern addressed by Revenue Ruling 2023-14, that point arrived the day after a contractual lock-up period ended and the reward units became freely transferable — not the moment the units were technically credited on-chain.
The ruling states that this treatment applies whether the taxpayer validates directly on a proof-of-stake blockchain or receives additional tokens through a staking arrangement offered by a cryptocurrency exchange. It also confirms that the reward is included in income at its fair market value even if the taxpayer does not immediately sell or exchange it — receiving the reward with the ability to use it is what triggers income, not a subsequent decision to hold or dispose of it.
Hypothetical example — for education only.
A taxpayer runs a validator on a proof-of-stake network. The protocol accrues reward units to the taxpayer continuously, but a network-level unbonding period means accrued rewards cannot be transferred or sold until 21 days after the taxpayer requests withdrawal. The taxpayer requests withdrawal on March 1; the 21-day unbonding period ends March 22; the reward units become freely transferable on March 22, when the price is $9.40 per token. If 40 reward tokens became transferable that day, the taxpayer recognizes ordinary income of 40 × $9.40 = $376 for the year, measured as of March 22 — not the earlier date the rewards began accruing, and not a later date the taxpayer happens to check the wallet.
Exchange-Based Staking vs. Self-Custodied Validator Staking
Revenue Ruling 2023-14 applies the same dominion-and-control standard to both arrangements, but the facts that establish when control actually arrives look different in practice.
| Factor | Exchange-based staking | Self-custodied / validator staking |
|---|---|---|
| Custody | Exchange holds the underlying asset and the reward; taxpayer holds an account balance | Taxpayer (or their delegated validator) controls the keys; rewards accrue on-chain |
| Typical timing of control | Often close to the reward-credit date, since credited balances are usually immediately tradable or withdrawable within the platform | Can be delayed by bonding periods, unbonding queues, or bridge/withdrawal mechanics specific to the protocol |
| Evidence of the taxable moment | Exchange staking statement or reward-history export showing credit date and any platform-level restriction | On-chain accrual records plus protocol documentation establishing when transfer restrictions lifted |
| Valuation source | Exchange's own posted price at credit, or an independent market price if the platform doesn't supply one | Independent market or oracle price at the moment transferability was obtained |
| Common pitfall | Treating the exchange's "estimated rewards" display as received income before it is actually credited and usable | Recording income at the on-chain accrual date instead of the later date restrictions actually lifted, or the reverse |
Neither arrangement is inherently more or less taxable — the ruling applies to both — but the recordkeeping burden differs. Exchange statements typically supply credit dates and reward histories directly; self-custodied validator staking usually requires the taxpayer to reconstruct accrual and unlock timing from block explorer data and the specific protocol's bonding rules.
The Jarrett v. United States Litigation
Joshua and Jessica Jarrett have argued, across two lawsuits, that newly created staking-reward tokens are new property the taxpayer creates — analogous to a farmer's crop or a manufacturer's finished goods — and should not be included in income until the taxpayer sells or exchanges them, rather than being taxed simply upon creation and receipt.
The Jarretts first sued the IRS in 2021 over their 2019 Tezos staking rewards. Before the court reached a decision, the IRS issued the Jarretts a refund for the specific tax year at issue, and the case was dismissed as moot without a ruling on the merits — leaving the underlying legal question unresolved. In October 2024, the Jarretts filed a second lawsuit (Docket No. 3:24-cv-01209, U.S. District Court for the Middle District of Tennessee) raising the same "new property" argument for a later tax year.
As of this article's publication, the second case remains active: cross-motions for summary judgment are pending, and a trial has been scheduled for September 29, 2026. Separately, other litigation — including Rogovy v. Commissioner — has also raised staking-income questions, and in 2025 the U.S. Tax Court issued a memorandum decision (Paschall) holding, in a pro se case decided on stipulated facts that commentators have since flagged as erroneous, that staking rewards constitute gross income upon receipt, consistent with Revenue Ruling 2023-14.
Why the Litigation Hasn't Changed the IRS's Position
- No ruling on the merits yet. The first Jarrett case was dismissed as moot, not decided. The second case is still pending trial. Neither has produced a final judgment resolving the "new property" theory.
- A district court decision would have limited reach. Even a taxpayer win in the pending case would generally bind only the parties to that specific case; it would not automatically rewrite Revenue Ruling 2023-14 or bind other taxpayers or courts, though it could be cited as persuasive authority and could increase pressure on the IRS to revisit its position.
- The IRS has not withdrawn or modified the ruling. Revenue Ruling 2023-14 remains the IRS's stated position while the litigation proceeds, and the 2025 Tax Court memorandum decision reached the same result.
- Conflicting outcomes are possible. Because a memorandum Tax Court decision is not binding precedent and multiple cases are moving in parallel, it is possible for different proceedings to reach different conclusions, which increases the odds this question is eventually resolved by a higher court rather than settled informally.
Until there is a final, binding appellate decision or new IRS guidance, taxpayers should assume Revenue Ruling 2023-14 reflects the operative federal tax treatment of staking rewards, while understanding that the legal landscape could shift.
Cost Basis After Staking Income: The Second Tax Event
Staking rewards create two separate tax events, not one. The first is the income event described above — the fair market value at the moment dominion and control is obtained is included in gross income. The second event happens later, whenever the taxpayer sells, swaps, spends, or otherwise disposes of those same reward units. That disposal triggers its own gain-or-loss calculation, and the number it starts from is the basis established at the first event.
The fair market value already recognized as ordinary income becomes the taxpayer's adjusted basis in the reward units. The date dominion and control was obtained becomes the acquisition date for holding-period purposes. No additional basis is created when the units are later sold — only a gain or loss measured against that already-established figure.
Hypothetical example — for education only.
Continuing the earlier validator example: the taxpayer recognized $376 of ordinary income when 40 reward tokens became transferable on March 22 at $9.40 per token. That $376 is now the taxpayer's basis in the 40 tokens ($9.40 per token), and March 22 is the acquisition date. Eight months later, on November 15, the taxpayer sells all 40 tokens for $14.75 each, or $590 gross proceeds, paying a $12 trading fee. Amount realized = $590 − $12 = $578. Gain = $578 − $376 = $202. Because the tokens were held from March 22 to November 15 — less than one year — the $202 is short-term capital gain, taxed separately from, and in addition to, the $376 of ordinary income already reported for the year the rewards became transferable.
This two-step structure means a staking position can generate a real tax bill in a year the market price later falls. If the same 40 tokens instead dropped to $6.00 by the time of sale, the taxpayer would still owe ordinary income tax on the original $376, and would separately report a capital loss on the sale — the loss does not retroactively erase the income already recognized.
Liquid Staking Derivative Tokens Complicate the Picture
Liquid staking protocols let a user deposit an asset (for example, ETH) and immediately receive a separate, tradable receipt token (for example, stETH or rETH) representing a claim on the deposited asset plus accruing staking rewards. The receipt token can be held, transferred, or used elsewhere in DeFi while the underlying deposit continues earning staking rewards in the background. The IRS has not issued specific guidance addressing these arrangements, and Revenue Ruling 2023-14 does not directly discuss receipt-token structures.
Question One: Is the Initial Deposit a Taxable Event?
Depositing an asset and receiving a receipt token in return looks, mechanically, like a crypto-to-crypto swap — which is generally a taxable disposal under ordinary property-tax principles. Two positions have developed in practice:
- Conservative position: Treat the deposit as a taxable swap. The taxpayer disposes of the deposited asset at its fair market value and acquires the receipt token, recognizing gain or loss on the deposited asset and establishing a new basis in the receipt token equal to its value at receipt.
- Alternative position: Treat the deposit as a nontaxable receipt rather than an exchange — analogous to receiving a claim ticket or a deposit receipt rather than trading one asset for a materially different one, on the theory that the receipt token merely evidences a continuing claim on the same underlying asset rather than representing a new and different economic interest.
Because no IRS ruling or regulation has resolved this question, taxpayers and preparers who take the alternative position should document the reasoning and apply it consistently, understanding that the conservative position carries less risk of later dispute.
Question Two: When Are the Ongoing Rewards Recognized?
Liquid staking tokens use different mechanics to reflect accumulating rewards, and the mechanic can affect the income-timing analysis:
- Rebasing tokens: The number of tokens in the holder's wallet increases periodically to reflect rewards, while each token's price target stays pegged near the underlying asset. Because the balance itself grows, some practitioners treat each rebase as a potential income event under dominion-and-control principles, which could mean frequent, small income recognitions.
- Exchange-rate (reward-bearing) tokens: The token balance does not change, but each token becomes redeemable for a growing amount of the underlying asset over time. Some practitioners argue income is not recognized under this model until the token is redeemed or sold, since no new units are credited to the taxpayer along the way; others argue the accruing value should be treated similarly to a rebasing token by analogy to Revenue Ruling 2023-14's underlying rewards. This is unresolved.
Hypothetical example — for education only, illustrating the unresolved analysis rather than a settled answer.
A taxpayer deposits 5 ETH (basis $8,500) into a liquid staking protocol and receives 5 receipt tokens in return. Under the conservative position, this deposit is treated as a swap: amount realized (FMV of receipt tokens received) equals $8,750, producing a $250 taxable gain on the deposited ETH, and the receipt tokens take a $8,750 basis. Under the alternative position, no gain or loss is recognized on the deposit, and the receipt tokens carry over the ETH's original $8,500 basis. The two positions produce different current-year tax bills and different starting bases for every future calculation involving those tokens — which is why documenting the position taken, and applying it consistently across all of a taxpayer's liquid staking activity, matters.
Misconceptions Versus Reality
| Misconception | Reality |
|---|---|
| Staking rewards aren't taxed until I sell them | Under Revenue Ruling 2023-14, the reward is ordinary income when dominion and control is obtained — typically well before any sale — with a separate gain-or-loss calculation occurring later at sale |
| The Jarrett lawsuit means staking rewards are currently untaxed | The litigation is unresolved and pending trial; the IRS's Revenue Ruling 2023-14 position remains in effect, and a 2025 Tax Court memorandum decision reached the same taxable-on-receipt conclusion |
| If the token's price crashes before I sell, I won't owe tax on the reward | The income amount is fixed at fair market value on the date control was obtained; a later price decline produces a separate capital loss on disposal, but does not erase the income already recognized |
| Exchange staking and running my own validator are taxed under different rules | Both are covered by the same dominion-and-control standard in Revenue Ruling 2023-14; what differs is the facts that determine when control actually arrives |
| Liquid staking tokens like stETH have clear, settled tax treatment | The IRS has not issued specific guidance on liquid staking receipt tokens; both the initial deposit and the ongoing reward-recognition timing remain open questions with competing practitioner positions |
| Once I've paid tax on a staking reward, that's the only tax event for those tokens | The income recognized becomes basis; selling, swapping, or spending those same tokens later triggers a separate, independent gain-or-loss calculation |
Practical Checklist for Staking Records
- Identify every staking arrangement in use: self-custodied validator, delegated staking, exchange staking product, or liquid staking protocol — each has different evidence available.
- For each reward, record the exact date and time dominion and control was obtained, not the accrual date and not the date you happened to check your wallet.
- Document the fair market value at the moment of dominion and control, along with the pricing source used.
- Note any lock-up, bonding, or unbonding period that applied, and the date it actually lifted.
- Record the wallet or account that received the reward and confirm you retain ownership evidence for it.
- For liquid staking positions, document which position (taxable swap vs. nontaxable receipt) was taken on the initial deposit, and apply it consistently across all deposits and redemptions.
- Track the basis and acquisition date each recognized reward establishes, so a later sale, swap, or spend can be matched to the correct lot.
- Flag any reward whose value could not be reliably determined — for example an illiquid or newly launched reward token — for professional review rather than defaulting to a market price that may not reflect actual accessible value.
- Revisit open positions if the Jarrett litigation or other pending cases produce a ruling, and document the date any change in position was made.
Staking Rewards Tax FAQs
When exactly are staking rewards taxed under IRS guidance?
Under Revenue Ruling 2023-14, a cash-method taxpayer includes the fair market value of staking rewards in gross income for the tax year in which the taxpayer gains dominion and control over the rewards — generally when the rewards become freely transferable, sellable, or otherwise disposable. Receiving a reward that remains locked, restricted, or otherwise inaccessible does not by itself trigger inclusion.
Does staking through an exchange get taxed differently than running my own validator?
The dominion-and-control standard applies to both, but the facts differ. Exchange-based staking rewards are typically credited to an account balance the taxpayer can act on almost immediately, so income is usually recognized close to the credit date. Self-custodied or validator staking can involve bonding periods, unbonding queues, or lock-ups, so dominion and control — and the taxable event — may not arise until those restrictions lift.
Has the Jarrett v. United States case changed how staking rewards are taxed?
No. As of this writing, Jarrett v. United States is an active, unresolved lawsuit in the U.S. District Court for the Middle District of Tennessee, with a trial scheduled for September 2026. The IRS has not withdrawn or modified Revenue Ruling 2023-14 while the case proceeds, and a district court ruling — even a win for the Jarretts — would not automatically bind other taxpayers or overturn the ruling nationwide.
What basis do I have in staking rewards after I've recognized them as income?
The fair market value included in gross income at the time dominion and control were obtained becomes the taxpayer's cost basis in the reward units, and the receipt date becomes the start of the holding period. A later sale, swap, or use of those units triggers a second, separate gain-or-loss calculation measured against that basis.
Are liquid staking tokens like stETH taxed the same way as staking rewards?
The IRS has not issued specific guidance on liquid staking receipt tokens, and the analysis is unsettled. Some practitioners treat the initial deposit-for-receipt-token exchange as a nontaxable receipt rather than a taxable swap, while others treat it conservatively as a disposal of the deposited asset. The tokens' underlying reward mechanics — a rebasing balance versus an appreciating exchange rate — can also affect when income is considered received.
Do I owe tax on staking rewards I haven't sold yet?
Potentially yes. Under the dominion-and-control standard, the taxable event is receiving the reward with the ability to control it, not selling it. A taxpayer can owe ordinary income tax on staking rewards in a year when the token's market price later falls, creating a mismatch between the tax bill and the position's current value.
What records should I keep for staking income specifically?
Keep the reward quantity, the exact date and time dominion and control was obtained, the fair market value at that moment and its pricing source, the wallet or account that received the reward, any lock-up or unbonding terms that applied, and a note of which basis the reward established for later disposal calculations.
Conclusion
The IRS's settled position, stated in Revenue Ruling 2023-14, treats staking rewards as ordinary income at fair market value once a taxpayer obtains dominion and control over them — a standard that applies whether staking happens through an exchange or a self-custodied validator, and regardless of what the reward's market price does afterward. That income figure then becomes the reward's basis, setting up a second, independent gain-or-loss calculation whenever the tokens are later sold, swapped, or spent. The Jarrett litigation and related cases raise a genuine, unresolved legal question about whether newly created staking rewards should instead be taxed only upon disposal, but none of that litigation has yet produced a final ruling that changes the operative treatment, and liquid staking receipt tokens add a further layer of unsettled analysis on top. Until the law changes, careful timestamped records of when control over each reward was actually obtained — and consistent, documented positions on the open questions — remain the best defense for any staking-related tax position.
Sources and Methodology
This guide is based on publicly available IRS guidance and court filings as of August 2026. Key sources include:
- Revenue Ruling 2023-14 (IRS, July 31, 2023): The IRS's published ruling concluding that the fair market value of staking rewards is includible in gross income when a cash-method taxpayer obtains dominion and control over them, applicable to both direct validation and exchange-based staking.
- Jarrett v. United States, No. 3:24-cv-01209 (M.D. Tenn., filed October 2024): The Jarretts' second lawsuit arguing that staking rewards are newly created property not taxable until disposed of; pending, with a trial scheduled for September 2026. Their earlier case (No. 3:21-cv-00419, M.D. Tenn.) was dismissed as moot in 2022 after the IRS issued a refund without a ruling on the merits.
- U.S. Tax Court memorandum decision (2025, commonly cited as Paschall): A non-precedential memorandum opinion holding staking rewards taxable upon receipt, consistent with Revenue Ruling 2023-14, decided in a pro se case on stipulated facts that commentators have since flagged as erroneous.
- IRS digital-asset guidance (IRS.gov): General guidance on the classification of digital assets and common transaction types under existing property-tax principles.
This content was reviewed by the Swoopr Markets Education Team in August 2026 and reflects U.S. federal tax guidance and litigation status available at that time. Both the underlying tax law and the referenced litigation may change; verify current guidance and case status before relying on any information in this guide.
Related Reading
- Crypto taxes and recordkeeping — the parent overview covering how trades, swaps, staking, airdrops, and transfers are tracked and reported.
- Airdrop and hard-fork taxation — how dominion-and-control principles apply to airdropped tokens and hard-fork receipts, a related but distinct income question.
- DeFi yield and liquidity-pool taxes — how the analysis extends to liquidity-provider rewards and other DeFi yield, including receipt-token questions similar to liquid staking.
- Inflation, emissions, and staking — the tokenomics side of staking rewards: how issuance and emission schedules determine reward rates in the first place.