Staking rewards don't get one tax event — they get two, layered on top of each other, and confusing them is one of the most common ways people under-report their actual crypto income.
The First Tax Event: Receiving the Reward
Staking rewards are taxed as ordinary income in the year you gain ‘dominion and control’ over them — meaning when they are credited to your wallet or staking account and you can freely dispose of them. Under IRS Revenue Ruling 2023-14, widely adopted as the governing principle, your income equals the fair market value of the rewards on the date received. That same figure also becomes your cost basis for whatever you eventually do with those specific coins.
The Second Tax Event: Disposing of It Later
Here is where the two-stage structure matters. Say you stake 1 ETH and receive 0.05 ETH in rewards. On the date received, ETH is worth $3,000, so your ordinary income is $150. Your new cost basis in that 0.05 ETH is also $150. Six months later you sell that 0.05 ETH at $3,500. Your capital gain on the sale is $3,500 minus $150, or $3,350 — a separate calculation from the income you already reported when you first received it. Miss this second step and you either double-count or under-report; miss the first step entirely and you understate your income for the year you actually earned it.
Liquid Staking and Restaking Follow the Same Principle
Staking ETH through a liquid staking protocol to receive a derivative token, then restaking that derivative token elsewhere, does not change the underlying logic. Each reward distribution is still an income event at fair market value. Receiving the liquid staking token itself in exchange for your staked ETH is generally treated as a continuation of the same position rather than a new taxable event — but the reward distributions themselves remain income regardless of how many layers of staking or restaking sit between you and the original asset.
Where to Go From Here
The Crypto Tax Reporting & Compliance Guide covers staking, mining, airdrops, and DeFi rewards in full, alongside the cost-basis tracking worksheets and country-specific guidance for the US, UK, EU, Canada, and Australia.
Get The Crypto Tax Reporting & Compliance Guide →
This article is for educational and informational purposes only and does not constitute tax advice. Crypto tax rules vary by jurisdiction and change frequently — consult a qualified tax professional for your own situation.