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Note: This blog is for informational purposes and does not constitute tax or legal advice. Consult a qualified crypto tax professional for your specific situation.
If you earned staking rewards in 2025 or 2026, you owe the IRS money, whether you sold those rewards or not.
2026 marks a turning point for crypto staking taxation. The IRS has made it clear that staking is no longer in a regulatory gray zone. Forms like 1099-DA and wallet-by-wallet accounting are raising the bar for how detailed your records need to be. Starting in 2026, IRS Form 1099-DA requires brokers to report digital asset transactions, increasing transparency and enforcement. For the first time in crypto's history, the IRS receives the same transaction data your exchange has, and can match it against what you report. The days of crypto's informal tax compliance era are definitively over.
For staking holders specifically, 2026 introduces a set of requirements that go well beyond simply reporting income: per-wallet cost basis tracking, income recognition at the moment of receipt regardless of whether you've sold, and new Form 1099-MISC reporting for staking rewards that arrives separately from your trading activity.
This guide covers exactly what staking rewards are, how they are taxed at every stage, what has changed in 2026, the forms you need, legal strategies to reduce your liability, and, critically, why the custody method you use for staking affects not just your security but your tax compliance position.
Staking is the process of locking cryptocurrency in a proof-of-stake blockchain network to help validate transactions and secure the network. In return, stakers receive additional tokens as rewards, typically paid in the same cryptocurrency being staked.
Staking rewards are payments you receive for helping secure proof-of-stake networks. These rewards usually show up as new tokens, either in small amounts or larger credits, depending on the network and how you stake.
Ethereum, Solana, Avalanche, Polkadot, and Cosmos are the largest PoS networks by staked value. Each pays rewards at different rates: Ethereum's staking yield runs approximately 3-4% annually, Solana around 6-8%, Polkadot 10-15% depending on nomination pool, and Cosmos-based chains vary widely.
The IRS's position on staking rewards has been settled since Revenue Ruling 2023-14: staking rewards are considered income at the time of receipt. The rationale is that receiving new tokens constitutes an accession to wealth — you have received something of value, and that receipt is taxable regardless of whether you immediately sell.
This creates a significant but frequently overlooked risk: staking rewards are treated as ordinary income when received, and you have dominion and control over them. This is classic phantom income: taxable income without the cash to pay the tax bill. If you staked Solana in 2025 and received 50 SOL in staking rewards over the year, you owe income tax on the fair market value of each reward at the time it was received, regardless of whether SOL subsequently went up, down, or sideways, and regardless of whether you sold any of it.
Staking rewards are not taxed once. They are potentially taxed twice, through two distinct events.
The IRS taxes staking rewards as ordinary income, with the taxable amount equalling the fair market value at the time you gain dominion and control. The income recognised at receipt becomes your cost basis for the tokens received.
If you received 1 SOL as a staking reward when SOL was trading at $120, you report $120 of ordinary income and your cost basis in that SOL is $120. Ordinary income is taxed at your marginal income tax rate, up to 37% for top earners in 2026. For most crypto stakers, staking rewards are reported on Form 1040 Schedule 1 as "Other Income."
Staking rewards come with two tax layers: income tax when you receive the tokens, and capital gains tax when you later sell them at a price above or below your cost basis.
Using the example above: you received 1 SOL at $120 (cost basis: $120, income reported: $120). If you later sell that SOL at $180, you have a $60 capital gain. If you held that SOL for more than one year before selling, it qualifies for long-term capital gains rates (0%, 15%, or 20% depending on your income). If less than one year, it is taxed as short-term capital gains, which is the same as your ordinary income rate.
The key point: the two-layer structure means you pay taxes on staking rewards regardless of whether you sell. Many holders discover this for the first time when filing their tax return and finding an unexpected ordinary income line item from staking activity they assumed was "just compounding."
The most significant change for crypto tax compliance in 2026 is the activation of Form 1099-DA, the IRS's new digital asset information return. Starting with 2025 transactions filed in 2026, covered US digital asset brokers, including most centralised exchanges, are required to report your crypto sales to the IRS using the new Form 1099-DA. This means exchanges send information about your transactions to both you and the US government at the same time, a notable shift from previous years.
Form 1099-DA represents a policy pivot: it is designed specifically for digital asset broker reporting, so crypto activity is no longer forced into a payment processor reporting framework. This creates a stronger third-party data trail, and mismatches are more likely to surface through automated matching when broker-reported proceeds do not align with what is reflected on the return.
What 1099-DA covers and what it does not: You may receive 1099-DA forms from exchanges for your spot trades. DeFi activity, NFT sales, wallet-to-wallet transfers, and many on-chain actions won't appear on 1099-DA. Critically for stakers: staking rewards are reported on Form 1099-MISC, not 1099-DA. The IRS views staking as an accession to wealth (ordinary income) rather than a disposition (capital event). You may receive both forms from the same exchange for different types of activity.
This means stakers in 2026 may need to reconcile three separate documents:
A critical nuance in 1099-DA staking reporting: cost-basis reporting is not required for the 2025 tax year. It phases in for transactions effected on or after January 1, 2026. Most forms received in early 2026 may not include cost-basis data. This means that even if you receive a 1099-DA, it may not contain the cost basis information you need to calculate your gains correctly. You are still responsible for tracking cost basis independently.
Under the IRS's digital asset basis rules, you're now expected to maintain cost basis records on a per-wallet or per-account basis, rather than treating everything as one combined pool.
Previously, holders could aggregate all their crypto holdings across all wallets and exchanges into a single pool for cost basis purposes, choosing advantageous lots regardless of which wallet they came from. That is no longer permissible. In 2026, each wallet, each exchange account and each self-custody wallet address, is a separate tracking pool. When you sell from a specific wallet, you can only use the cost basis of tokens that were actually in that wallet. You cannot reach across to pull in a lower basis from a different wallet.
One of the most challenging new requirements is the wallet-by-wallet cost basis rule. Previously, taxpayers could use universal accounting methods across all holdings. Broker-reported basis may be wrong, especially for assets transferred from other platforms. Crypto losses can offset gains and up to $3,000 of ordinary income annually — failing to report losses means missing valuable deductions.
The practical implication for stakers: Every wallet that receives staking rewards needs its own cost basis ledger. If you stake SOL in three different locations: an exchange staking product, a hardware wallet delegated to a validator, and a DeFi liquid staking protocol, each is a separate tracking pool. Rewards received in each pool have cost basis established at the FMV when received, and that basis stays in that pool.
Investors have dominion and control as soon as they have the ability to withdraw their staking rewards. In this case, the rewards may be considered constructively received. In other words, you'll recognise income whether or not your coins are in your personal wallet or are in the hands of a third-party. As long as you have the ability to withdraw, it is considered taxable income.
This has a specific implication for holders in locked staking positions: in cases where rewards cannot be withdrawn, it is reasonable to take the position that your staking rewards are non-taxable. For example, some platforms gave users the ability to stake their Ethereum but restricted withdrawals until the Ethereum Merge was completed.
The timeline matters enormously for multi-year locked staking positions. For example, if you staked tokens in July 2025 and the rewards accumulated in a smart contract but remained locked until January 2026, because you didn't have dominion and control over the crypto in 2025, you won't report this income until you file your 2026 tax return. You'll use the FMV of the tokens on the day they were unlocked in January to determine your income.
Review every staking position for the lock-up and withdrawal mechanics. The date you can first withdraw, not the date rewards were mathematically earned, is the taxable date.
There is one significant legal development that every staking holder should be aware of, though it should not change your reporting strategy today.
Jarrett v. United States (3:24-cv-01209, M.D. Tenn.) challenges whether staking rewards should be taxable at receipt. A bench trial is scheduled for September 29, 2026. Do NOT wait or take a no-income position based on pending litigation. File per Rev. Rul. 2023-14.
The Jarrett case argues that newly minted tokens from staking are newly created property, like a baker creating a loaf of bread from raw ingredients, and should not be taxable until sold. If Jarrett wins, it could delay the income recognition event for staking rewards from receipt to sale, a significant tax deferral for holders with large staking positions.
Consider protective refund claims for material amounts if you want to preserve the option to claim a refund if Jarrett wins. This means filing your return per current IRS guidance (income at receipt), but filing a separate protective refund claim for the tax paid on staking rewards, which would be refunded if the Jarrett position is ultimately upheld. The protective refund claim costs little and preserves optionality.
Do not rely on Jarrett as a reason to avoid reporting: the IRS expects full compliance per current guidance regardless of pending litigation.
Here is the angle that every staking tax guide misses: the custody method you use for staking has direct implications for your tax compliance quality, not just your security.
When you stake through a centralised exchange, Coinbase staking, Binance Earn, or any similar product, the exchange handles the staking mechanics and pays you rewards. They may issue a Form 1099-MISC for rewards paid through their platform. But here is the problem: if you moved crypto between platforms or wallets, you're responsible for tracking what you originally paid. Exchanges can only report cost basis for assets they held from purchase to sale.
Exchange staking creates a tax record that is partial at best. The 1099-MISC tells the IRS what rewards you received. It does not give you the granular per-reward FMV data you need to accurately establish cost basis for every staking reward received across the year. And because exchange rewards are commingled with your trading account, separating the cost basis pools for wallet-by-wallet accounting becomes complex.
Additionally, exchange staking is custodial: the exchange holds the private keys to your staked position. You are trusting the exchange's accounting of your rewards, which may not align with on-chain data. Any discrepancy between their records and on-chain reality is your problem at audit time.
When you stake from a hardware wallet, delegating SOL, DOT, or AVAX from your Cypherock X1 directly to a validator, every staking reward is an on-chain transaction with a precise timestamp and an on-chain FMV at the time of receipt. The blockchain is a perfect ledger. Every reward receipt is recorded with:
A crypto tax tool (CoinLedger, Koinly, CoinTracker) that imports your self-custody wallet's transaction history has complete, auditable data for every staking reward, far more reliable than an exchange's aggregated 1099-MISC that may not capture every micro-reward or may round amounts.
DeFi activity, NFT sales, wallet-to-wallet transfers, and many on-chain actions won't appear on 1099-DA. You'll need to track and report these yourself. This is equally true for self-custody staking rewards. But the difference is that the on-chain data available for self-custody staking is complete and independently verifiable, while exchange-based staking data depends entirely on the exchange's reporting infrastructure.
The IRS's wallet-by-wallet cost basis requirement makes deliberate wallet architecture a tax compliance asset. Holders who have followed the multi-account strategy recommended in our wallet management guide, separate accounts for cold storage, staking, and DeFi, have naturally created the separate tracking pools the IRS now requires.
A Cypherock X1 user with Account 1 (cold storage) and Account 2 (staking) already has segregated pools. The staking rewards flow into Account 2, have their own cost basis ledger, and never commingle with Account 1's long-term holdings. This is not just good security practice: it is now also the correct tax architecture.
There are legitimate, IRS-compliant approaches to managing staking tax liability. These are tax strategies, not avoidance. Consult a crypto CPA before implementing any of them.
Staking rewards come with two tax layers: income tax when you receive the tokens, and capital gains tax when you later sell them at a price above or below your cost basis. If you hold the received tokens for more than 12 months before selling, any appreciation above your cost basis (the FMV at receipt) is taxed at long-term capital gains rates (0%, 15%, or 20%) rather than ordinary income rates (up to 37%).
The income tax at receipt is unavoidable. But the capital gains treatment on subsequent appreciation is significantly more favourable for long-term holders.
If staking rewards received at a high FMV have since declined in value, selling them at a loss generates a capital loss that can offset capital gains elsewhere in your portfolio. You cannot tax-loss harvest staking rewards directly as they are ordinary income. However, if you sell the cryptocurrency received as staking rewards at a loss relative to its cost basis (FMV at receipt), that capital loss can be used to offset capital gains and potentially up to $3,000 of ordinary income annually with unlimited carryforward.
Note the 2026 wash sale rule expansion: substantially identical crypto positions now trigger wash sale disallowance, matching the stock market's 30-day rule. You cannot sell a staking reward token for a loss and immediately repurchase it — the loss would be disallowed. You must wait 30 days or purchase a different asset.
Some liquid staking approaches, rETH (Rocket Pool) and wstETH (Lido), accrue value within the token rather than distributing rewards as separate taxable receipts. If you hold rETH, cbETH, or other value-accrual liquid staking tokens (LSTs): there is no annual income to report on the embedded rewards — just track basis for eventual disposition.
This approach defers the income recognition event from annual reward distribution to eventual sale of the LST, converting what would be annual ordinary income events into a single capital gains event. For high-income holders in the 37% bracket, this deferral is meaningful.
For US holders, some custodial services allow staking within self-directed IRAs that hold crypto. Staking rewards inside a Traditional IRA may be tax-deferred; inside a Roth IRA they may be tax-free on eventual distribution. This is a complex area requiring specific custodial infrastructure: a mainstream hardware wallet does not satisfy IRA custody requirements. But for high-value stakers, the tax savings can be substantial.
As noted above, filing protective refund claims for the ordinary income recognised on staking rewards preserves optionality if the Jarrett case ultimately succeeds. For holders with more than $10,000 annually in staking income, this is worth discussing with a CPA.
Staying compliant with staking tax rules in 2026 requires accurate tracking and proactive planning. The IRS now expects more detailed records, and failure to report even small rewards can trigger penalties. The IRS does not apply a minimum threshold to crypto income. Even small rewards must be reported, whether or not you receive a 1099 form from the platform.
For each staking reward received, you need to track:
For self-custody staking from Cypherock X1, this data is all available on-chain. Import your wallet addresses into a crypto tax tool, CoinLedger, Koinly, CoinTracker, or TokenTax, and it will pull complete transaction history including reward receipts with timestamps. The tool calculates FMV at receipt using historical price data and generates the required tax reports.
For exchange staking, download the complete transaction history from each exchange in addition to the 1099-MISC. Do not rely solely on the 1099-MISC: Form 1099-DA is not a complete tax calculation. Taxpayers still need to compute gains or losses using a supportable cost basis.
Staking income typically goes on Form 1040 Schedule 1 as "Other Income." If you dispose of the tokens, use Form 8949 and Schedule D to report capital gains or losses. The complete reporting path:
Step 1: Compile all staking reward income. Aggregate every staking reward received across all wallets and platforms. Note the FMV at receipt for each. This total is your staking income for the year.
Step 2: Report on Schedule 1, Line 8z. Staking rewards that are not reported on a 1099-MISC go on Schedule 1 (Additional Income and Adjustments), Line 8z (Other Income). If you received a 1099-MISC, verify the amount matches your own records before using the 1099-MISC figure.
Step 3: Establish cost basis for each reward received. The FMV at receipt of each reward is its cost basis. Record this per reward, per wallet, per coin. This basis is what you'll use if and when you sell the reward tokens.
Step 4: Report disposals on Form 8949 and Schedule D. If you sold any staking rewards during the year, report each disposal on Form 8949, showing the date acquired (date reward received), date sold, proceeds, and cost basis. Summarise on Schedule D.
Step 5: Consider quarterly estimated tax payments. Estimated tax planning: crypto gains trigger estimated tax obligations, quarterly payments due April 15, June 15, September 15, and January 15 of the following year. Underpayment penalties reach 8% annually for 2026, making quarterly planning essential. Significant staking income mid-year creates an estimated tax obligation before year-end filing. Calculate your expected staking income quarterly and adjust estimated payments accordingly.
The connection between self-custody staking and tax compliance is practical, not theoretical. For holders staking significant amounts of SOL, DOT, AVAX, or ETH, the choice between exchange staking and hardware wallet staking has direct consequences for both security and tax record quality.
Security: Staking directly from a hardware wallet means your private key never touches the exchange's infrastructure. The staking contract or validator delegation is on-chain, accessible by you through your private key regardless of any exchange's operational status.
Tax record quality: Every staking reward received at your Cypherock X1 wallet address is on-chain with a precise timestamp and amount. Crypto tax tools that import your wallet address have complete, auditable data. The wallet-by-wallet cost basis rule is naturally satisfied when you use separate accounts for cold storage and staking.
Portability: Exchange staking records are tied to the exchange's reporting. If you change exchanges, export your history before closing the account: it becomes extremely difficult to reconstruct later. On-chain staking records are permanent and accessible through any block explorer regardless of which tools or platforms you use.
For holders using Cypherock X1 with multiple wallet accounts, cold storage in Account 1, staking in Account 2, the tax architecture is clean by design. Account 2's on-chain history is the complete, accurate record of every staking reward received, with amounts and timestamps that satisfy the IRS's per-wallet tracking requirements.
Yes. Staking rewards are taxable as income when you gain control over the tokens. The taxable event is receipt, not sale. You owe ordinary income tax on the fair market value of each reward at the time you received it, regardless of whether you subsequently sell.
The IRS does not apply a minimum threshold to crypto income. Even small rewards must be reported, whether or not you receive a 1099 form from the platform. You are responsible for reporting all staking income regardless of whether you received a tax form. Use your exchange's transaction history to reconstruct reward receipts and their FMV.
Most crypto tax tools (CoinLedger, Koinly, CoinTracker) pull historical price data and automatically calculate FMV at the timestamp of each on-chain transaction. For manual tracking, use a reputable price data source (CoinGecko, CoinMarketCap) and record the closing price on the date of receipt. For staking rewards received at non-standard times, use the price at the transaction timestamp.
In the US, transferring crypto between personal wallets without incurring any sale is not a taxable event. You can transfer your coins from one wallet to another before staking the asset without paying any crypto taxes. A transfer from an exchange account to your Cypherock X1 wallet is not a taxable event, but it does create a wallet change in your cost basis tracking pool. Ensure your crypto tax tool knows the transfer is not a sale.
Substantially identical crypto positions now trigger wash sale disallowance, matching the stock market's 30-day rule. If you sell a staking reward token at a loss and repurchase the same or substantially identical token within 30 days (before or after), the loss is disallowed. This applies to 2026 transactions. Consult a CPA for guidance on your specific situation.
Do NOT wait or take a no-income position based on pending litigation. File per Rev. Rul. 2023-14. The Jarrett bench trial is scheduled for September 29, 2026, but its outcome is uncertain and does not change current IRS guidance. Report staking income per current rules. If you have material staking income, consider filing a protective refund claim to preserve optionality if Jarrett ultimately succeeds.
The IRS has made it clear that staking is no longer in a regulatory gray zone. Form 1099-DA is live. Wallet-by-wallet cost basis tracking is required. Staking rewards are taxable as ordinary income at receipt. And the Jarrett case, while worth watching, does not change your obligations today.
The complexity of 2026's staking tax rules is real. But it is manageable with the right architecture: per-wallet tracking pools that align with the IRS's requirements, complete on-chain records for every reward receipt, and tax software that imports those records automatically.
Self-custody staking from a hardware wallet like Cypherock X1 provides the most auditable, portable, and complete staking record available: every reward on-chain, every timestamp precise, every amount verifiable on a public blockchain independent of any platform's reporting choices. That is not just the most secure way to stake. It is increasingly the most compliant way to stake.
Note: This guide is for informational purposes only and does not constitute tax or legal advice. Crypto tax law is complex and evolving. Consult a qualified crypto CPA or tax attorney for advice specific to your situation.
Stake your crypto securely and with full on-chain auditability: explore Cypherock X1 for hardware-based self-custody staking. See our staking guides for Solana, Polkadot, and Avalanche, and manage all staking accounts through cySync's portfolio view.
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