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In a ruling issued on Monday, the Internal Revenue Service (IRS) said rewards obtained through staking are taxable once the user has received the tokens.
The US federal revenue service will require taxpayers to recognize and count staking rewards as part of their gross income per Revenue Ruling 2023-14. The tax authority's guidance on income earned from staking digital assets will apply to taxpayers using a cash method of accounting and in the year the rewards are received.
Investors earning rewards through validation in proof-of-stake blockchains either directly or through centralized exchange entities are effectively required to include the value of the staking earnings under their income.
“The fair market value is determined as of the date and time the taxpayer gains dominion and control over the validation rewards,” a section of the ruling's legal background clarified.
The IRS defined dominion as an investor assuming control of the distributed rewards and being able to authorize the sale or swapping of the crypto rewards. Monday's update mirrors previous guidance on how to treat rewards in proof-of-work networks. The agency previously subjected these crypto-mining rewards to taxation under income and capital gains.
On social platforms, the IRS tax determination for crypto-staking was broadly met with criticism and disapproval.
“While the ruling is therefore unsurprising, it's still disappointing,” one commentator wrote on X.