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Will the IRS stop double taxing my crypto staking rewards by 2026?
Congress Pushes IRS for Staking Tax Reform
A bipartisan coalition in the U.S. Congress has formally requested that the IRS overhaul its taxation framework for cryptocurrency staking. Eighteen lawmakers directed a letter to IRS leadership, specifically urging a review of existing guidance before the 2026 tax year begins. The core issue involves the unfair financial burden placed on digital asset investors under current regulations. Lawmakers argue that the current system forces Americans to pay taxes twice on the same asset.
The Problem: Double Taxation of Staking Rewards
The friction centers on Revenue Ruling 2023-14. This IRS rule mandates that investors report staking rewards as gross income the moment they possess the tokens. Investors must calculate the fair market value of the reward at the time of receipt and pay income tax immediately.
Later, if the investor sells those tokens, they must pay capital gains tax on any appreciation. Critics and lawmakers argue this constitutes double taxation. Furthermore, this policy creates “phantom income” liabilities; investors may owe taxes on tokens that subsequently lose value before they are sold, creating a cash-flow crisis for the taxpayer.
Representative Mike Carey, leading the initiative, argues that staking rewards should function like created property—such as crops or manufactured goods. In these traditional sectors, taxation occurs only upon sale. Transitioning to a realization-based tax model would simplify compliance and protect investors from volatile market swings.
Legislative Solutions: The PARITY Act
Congress is actively proposing legislative fixes to address these discrepancies. The current dialogue builds upon previous attempts, such as the Providing Tax Clarity for Digital Assets Act, which sought to align digital asset taxation with traditional commodities.
More recently, Representatives Steven Horsford and Max Miller introduced the PARITY Act. This legislation acknowledges the unique technical reality of digital assets. Key provisions include:
- Tax Deferral: Investors could delay paying taxes on mining and staking rewards until the asset is sold, for a period of up to five years.
- Transaction Exemptions: The bill proposes lowering tax burdens on small stablecoin transactions, facilitating everyday use.
This legislative push signals that policymakers understand the necessity of modernizing the tax code to accommodate decentralized finance.
Industry Implications and Economic Competitiveness
Industry leaders warn that aggressive taxation threatens the United States’ position in the global blockchain economy. Miller Whitehouse-Levine, CEO of the Solana Policy Institute, emphasizes that staking is not merely an investment strategy but a technical contribution to network security.
If the IRS maintains a punitive tax stance, validators may migrate to jurisdictions with favorable regulatory environments. Ji Hun Kim, CEO of the Crypto Council for Innovation, notes that current rules fail to distinguish between passive income and network participation rewards. Misclassifying these assets risks stifling innovation and slowing the adoption of blockchain technology in the U.S. financial sector.
What This Means for Your Portfolio
For investors, a shift in IRS guidance would provide immediate financial relief. Under a reformed system, you would no longer owe tax immediately upon receiving a staking reward. Instead, the tax event would trigger only when you convert the crypto to fiat or another asset.
This change would allow you to compound rewards without liquidating assets to cover tax bills. It simplifies record-keeping and aligns tax liability with actual realized profit, offering a more stable environment for long-term holding strategies.