How Are Staking Rewards Taxed: Complete Guide

Cryptocurrency staking has become a popular investment strategy over the past few years, so interest in the topic is growing. Especially crypto owners want to know about how staking rewards are taxed.

Actually, every country has different tax codes, so this issue is much deeper than it seems. In this article, we gathered the current and comprehensive information about taxes for staking rewards. Study the guide to stay aware of updates and understand the issue totally.

What Is Staking?

Before starting to explore staking rewards taxes, it’s necessary to understand the essence of staking.

So, staking is a way for earning rewards by storing and actively using cryptocurrency on the blockchain. In this case it uses a mechanism called Proof of Stake (PoS), which provides transactions’ verification and security without the intermediaries’ involvement such as a bank or payment system. Proof of Stake includes only crypto holders participating in transactions’ verification process on the blockchain. This process is enforced by computers on a particular blockchain network, ensuring the accuracy of the ledger.

Not all cryptocurrencies can be staked, but the list of possible ones is quite large. There are some popular cryptos among them — for example, you can stake Ethereum, Polygon, Solana, Cosmos, Cardano, and others.

What Are Staking Rewards?

Staking rewards are incentives that crypto holders receive for participating in network activities on the blockchain. You can act as a validator by processing transactions on the network, or you can stake your cryptocurrency on special platforms that perform as validators themselves. Among them are cryptocurrency wallets or crypto exchanges. For example, on the Cryptomus exchange, you can lock your funds in the platform's wallet safely and earn every time the validator creates new blocks. Moreover, you may become a validator yourself, and it can increase your rewards.

You can also make a significant amount of money from staking, if you’re acquainted with a few factors that can affect the process. In general, the amount of reward depends on several aspects:

• Staked cryptocurrency.

• The staking provider.

• The token lock duration.

• A validator status.

In most cases, when you stake a cryptocurrency, you are rewarded with new coins or tokens of the same cryptocurrency. For example, Polygon users stake MATIC tokens, for which they receive the same tokens as compensation. Such an approach increases the network’s decentralization and security.

Do You Have To Pay Taxes In The United States?

The US IRS treats cryptocurrency as a form of property, so it is taxed in the same way as equities or real estate. Staking rewards are subject to taxation as a part of total income.

How Are Staking Rewards Taxed In The United States?

Mining and staking the crypto are considered income in the United States at the time they are received. Due to it, they are taxed at the standard income tax rate.

Cryptocurrency taxes must be included in your annual tax return along with all other taxes. You need to fill out the Form 1040 (U.S. Individual Income Tax Return), which reports your total income, including ordinary income received from cryptocurrency transactions. Any crypto must be converted to U.S. dollars before the tax is calculated.

The table below shows the amount of tax for different levels of cryptocurrency income, including staking rewards. Let's take a closer look.

Scale of staking reward taxes in the United States
The income level	The tax amount
From 0 to 11 000 $	10%
From 11 001 to 44 725 $	12%
From 44 726 to 95 375 $	22%
From 95 376 to 182 100 $	24%
From 182 101 to 231 250 $	32%
From 231 251 to 578 125 $	35%
From 578 126 $ and more	37%

We hope this guide has helped you understand how cryptocurrency staking rewards are taxed, and now you know what taxation process applies in your country. Share your experience of staking in the comments below, or ask questions if you have any.