In response to a lawsuit filed by Joshua and Jessica Jarrett, the US Internal Revenue Service (IRS) announced on Monday that rewards earned from staking cryptocurrencies should be subject to taxation, as reported by Bloomberg.
The couple had argued that staking rewards should only be taxed when they are sold or exchanged, rather than upon receipt.
However, the IRS rejected this argument in their filing and maintained that staking rewards should be considered as income and reported accordingly.
The lawsuit pertains to Revenue Ruling 2023-14, which states that staking rewards must be included in a person’s gross income for the tax year in which they are received.
The IRS explained that staking constitutes earnings and must be reported as such:
“Revenue Ruling 2023-14 requires taxpayers who receive staking rewards to report the rewards as income at their fair market value upon having the ability to sell, exchange, or otherwise dispose of them.”
Staking involves locking up cryptocurrency in a smart contract to support blockchain operations, such as verifying transactions and securing the network. Investors earn yields as compensation for contributing to the network’s security, making staking a popular method for generating passive income from digital assets.
