Over the past few years, crypto staking has moved from a niche activity into a mainstream way for millions of people to earn rewards on digital assets. As a result, tax rules written long before proof of stake became popular are now being tested in real life. Recently, US lawmakers urged the Internal Revenue Service to revise how staking rewards are taxed, with a clear goal in mind. They want to eliminate what many see as double taxation by 2026.
At the same time, the discussion has shifted from theory to urgency. Because more Americans stake tokens through exchanges, wallets, and decentralized protocols, confusion around taxes has only increased. Consequently, lawmakers argue that the IRS must act sooner rather than later to provide fair and predictable guidance.
Understanding crypto staking in simple terms
Before diving deeper, it helps to clarify what crypto staking actually involves. In proof of stake networks such as Ethereum, Solana, and Cardano, users lock up tokens to help secure the network. In return, they receive new tokens as rewards.
Traditionally, the IRS has treated many crypto rewards as taxable income upon receipt. Therefore, when a staker earns new tokens, those tokens are often taxed based on their market value at the time they are created. Later, if the staker sells those tokens, capital gains tax may also apply. As a result, critics argue that the same economic value can be taxed twice.
For a broader overview of how crypto is generally taxed, you can review our internal guide on digital asset taxation basics here: https://example.com/blog/crypto-tax-basics
Why lawmakers are stepping in now
In recent letters and statements, bipartisan groups of US lawmakers have pressed the IRS to reconsider its approach to staking rewards. Their argument is straightforward. They believe staking rewards are more like newly created property rather than immediate income.
Because of that distinction, lawmakers suggest that taxes should apply only when those tokens are sold or exchanged, not at the moment they are created. In other words, they want to align staking with how other forms of property are taxed in the US.
This concern has been echoed across the crypto industry. For example, developers argue that current rules discourage innovation, while everyday users say the rules are confusing and difficult to follow.
The double taxation concern explained clearly
To understand the frustration, consider a simple scenario. A user stakes tokens and receives new rewards. Under current interpretations, those rewards may be taxed as ordinary income. Later, if the user sells the tokens at a higher price, capital gains tax applies.
However, even if the price falls, the original income tax may still be owed. As a result, users can end up paying taxes on value they never truly realized. Therefore, lawmakers say this outcome is unfair and inconsistent with how other assets are treated.
This issue has already reached the courts. In the well known Jarrett case, a taxpayer argued that staking rewards should not be taxed until sold. Although the case did not produce a binding precedent, it sparked a wider policy debate that continues today. More details on that case can be found via CoinDesk: https://www.coindesk.com/policy/2022/10/07/crypto-staking-tax-case-jarrett-explained/
What the IRS relies on today
Currently, the IRS relies on older guidance such as Notice 2014 21 and Revenue Ruling 2019 24. These documents mainly address mining and airdrops rather than modern staking.
Because staking has evolved rapidly, these rules often feel outdated. Consequently, tax professionals are left interpreting gray areas, while everyday taxpayers struggle to comply with confidence.
For reference, the IRS Notice on virtual currency is available here: https://www.irs.gov/pub/irs-drop/n-14-21.pdf
Additionally, Revenue Ruling 2019 24 can be reviewed here: https://www.irs.gov/pub/irs-drop/rr-19-24.pdf
Lawmakers call for action by 2026
Importantly, lawmakers are not asking for immediate changes without careful study. Instead, they are urging the IRS to revise staking tax rules by 2026. This timeline is meant to give regulators space to consult experts, review data, and align policy with technological realities.
At the same time, setting a target year sends a clear signal. It tells both taxpayers and the crypto industry that reform is coming, and that the government recognizes the need for clarity.
Several senators and representatives have emphasized that clear rules will improve compliance. When people understand how they are taxed, they are more likely to report accurately. Therefore, reform could actually strengthen the tax system rather than weaken it.
How clearer rules could help everyday stakers
For everyday users, updated rules could make a meaningful difference. First, they could reduce unexpected tax bills. Second, they could simplify record keeping. Third, they could encourage broader participation in blockchain networks without fear of hidden liabilities.
Moreover, clearer guidance would help exchanges and wallet providers offer better tools for tax reporting. As a result, compliance could become more automated and less stressful for users.
If you want to explore how exchanges currently handle tax reporting, this overview from Coinbase is useful: https://www.coinbase.com/learn/crypto-basics/understanding-crypto-taxes
Broader implications for innovation
Beyond individual taxpayers, the debate has wider implications for US competitiveness. Many lawmakers worry that unclear or overly harsh tax rules could push blockchain development offshore.
In contrast, countries that offer clearer frameworks may attract talent and investment. Therefore, revising staking tax rules could help the US remain a leader in financial innovation.
Industry groups such as the Blockchain Association have echoed this view. They argue that sensible tax policy can coexist with strong enforcement, provided the rules reflect how the technology actually works. More on their policy positions can be found here: https://theblockchainassociation.org/
Concerns and counterarguments
Of course, not everyone agrees on the best approach. Some tax experts caution that delaying taxation until sale could reduce short term tax revenue. Others worry about setting precedents that could be exploited.
However, supporters of reform counter that fairness and clarity should come first. They argue that taxing unrealized value creates distortions and undermines trust in the system.
Because of these differing views, lawmakers are calling for collaboration between the IRS, Congress, and industry experts. Through dialogue, they believe a balanced solution can emerge.
Global context and comparisons
Interestingly, the US is not alone in grappling with staking taxes. Other countries are also reviewing their policies. For instance, some jurisdictions tax staking rewards only upon disposal, while others treat them as income.
By studying these models, US regulators could adopt best practices while avoiding known pitfalls. Therefore, the current push for reform is also an opportunity to learn from international experience.
A helpful overview of global crypto tax approaches is available from KPMG: https://home.kpmg/xx/en/home/insights/2021/07/cryptoassets-taxation.html
How this debate affects future policy
As lawmakers continue pressing for change, the staking tax debate may influence broader crypto regulation. Clearer tax rules could pave the way for more comprehensive digital asset policies.
Additionally, resolving this issue could build trust between regulators and the crypto community. When both sides feel heard, cooperation becomes easier.
Therefore, the call to revise staking tax rules is about more than taxes alone. It is about shaping how emerging technologies are integrated into existing systems.
Practical steps for stakers right now
While waiting for potential changes, stakers still need to comply with current rules. Keeping detailed records remains essential. This includes tracking when rewards are received, their fair market value, and when they are sold.
Consulting a tax professional who understands digital assets can also help reduce risk. Although reform may be coming, current obligations still apply.
For practical guidance, the IRS virtual currency FAQ page remains a key resource: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions
Closing perspective
Ultimately, the push by US lawmakers to revise crypto staking tax rules by 2026 reflects a broader recognition that technology has outpaced regulation. By addressing double taxation concerns, policymakers aim to create a fairer and more workable system.
If successful, these efforts could benefit taxpayers, support innovation, and strengthen compliance. As the conversation continues, one thing is clear. Thoughtful updates to staking tax policy are no longer optional, but necessary for the digital economy to thrive.
Sources
CoinDesk, Crypto Staking Tax Debate: https://www.coindesk.com
IRS Notice 2014 21: https://www.irs.gov/pub/irs-drop/n-14-21.pdf
IRS Revenue Ruling 2019 24: https://www.irs.gov/pub/irs-drop/rr-19-24.pdf
Coinbase Crypto Tax Overview: https://www.coinbase.com/learn/crypto-basics/understanding-crypto-taxes
Blockchain Association Policy Resources: https://theblockchainassociation.org/
KPMG Global Crypto Tax Insights: https://home.kpmg/xx/en/home/insights/2021/07/cryptoassets-taxation.html
