As digital assets continue to mature, one of the most persistent problems in crypto tax policy remains how staking and mining rewards are taxed. Under current IRS guidance, specifically Revenue Ruling 2023-14, staking and mining rewards are taxed when received and then taxed again when sold. This creates a form of double taxation that does not align with how income is taxed in most other areas of the tax code and places an unnecessary burden on taxpayers who participate in securing blockchain networks.
A more sensible approach would tax staking and mining rewards only when they are sold or otherwise disposed of. Doing so would improve fairness, reduce compliance complexity, and bring crypto taxation closer to long established tax principles.
How Staking and Mining Are Taxed Today
Under current IRS rules, staking and mining rewards are treated as ordinary income at the moment the taxpayer gains control over the newly created tokens. The fair market value of the tokens at that time must be reported as income, even though the taxpayer has not sold anything or received cash.
Later, when those same tokens are sold, exchanged, or spent, the taxpayer must calculate capital gain or loss based on the difference between the value at receipt and the value at disposition. In effect, the same asset is taxed twice. First as income and then again as a capital transaction.
This treatment is unusual and inconsistent with how newly created property is taxed in other contexts.
Why This Results in Unfair Double Taxation
The core problem is timing. Staking and mining rewards often fluctuate significantly in value between the time they are received and the time they are sold. Taxpayers can be forced to pay ordinary income tax on a value that no longer exists by the time they convert the asset to cash.
In some cases, taxpayers owe tax on rewards that later decline sharply in value, creating a situation where tax is due without the funds to pay it. While capital losses may eventually offset some of this burden, the mismatch in timing creates unnecessary risk and financial strain.
This outcome is not aligned with basic principles of tax fairness.
Why Receipt Based Taxation Does Not Fit Crypto Networks
Staking and mining are not the same as receiving a paycheck or cash bonus. Participants contribute computing power or lock up assets to secure decentralized networks. The rewards are protocol generated and often illiquid at the moment of receipt.
Taxing rewards immediately assumes a level of liquidity and control that does not always exist. It also forces taxpayers to track and value potentially thousands of small reward transactions throughout the year, dramatically increasing reporting complexity.
For everyday participants, this level of recordkeeping is unrealistic.
A Sale Based Approach Is More Consistent With Tax Policy
Taxing staking and mining rewards when they are sold would better align with how other forms of property creation are treated. In many areas of the tax code, income is not recognized until there is a realization event, such as a sale or exchange.
Under a sale based approach, rewards would not be taxed until the taxpayer converts them into cash or another asset. At that point, the entire amount could be taxed once, using a clear and objective value. This would eliminate double taxation, simplify reporting, and ensure taxes are paid when liquidity actually exists.
Reduced Complexity Improves Compliance
Crypto tax compliance is already one of the most complex areas of individual taxation. Wallet by wallet cost basis tracking, information reporting gaps, and volatile pricing make accurate reporting difficult even for sophisticated taxpayers.
Removing receipt based taxation for staking and mining would meaningfully reduce this burden. Taxpayers would no longer need to assign values to each reward at the moment of receipt or report income that may never be realized in cash.
Simpler rules lead to higher compliance and better outcomes for both taxpayers and the IRS.
Encouraging Innovation Without Creating Loopholes
Taxing rewards only when sold does not create a tax loophole. It simply aligns taxation with economic reality. Taxpayers would still pay tax when they realize value, and gains would still be reported and taxed appropriately.
This approach supports responsible participation in blockchain networks without giving preferential treatment or encouraging abuse. It recognizes that staking and mining are foundational to decentralized systems and should not be penalized through poorly fitted tax rules.
The Bottom Line
Under current law, staking and mining rewards are taxed twice, once at receipt and again when sold. This creates unfair outcomes, increases compliance burdens, and taxes income before liquidity exists. A sale based taxation model would be more consistent, more administrable, and more equitable.
At Gordon Law, we focus on the intersection of digital asset innovation and sound tax policy. We advocate for rules that reflect how these networks actually function while protecting taxpayers from unnecessary complexity and risk. As policymakers continue to refine crypto tax guidance, taxing staking and mining rewards only when sold is a critical step toward a fair and workable system.
