Key takeaways

  • Staking rewards and airdrops are typically taxable as ordinary income at the fair market value (FMV) when you receive them (IRS Notice 2014-21; IRS virtual currency FAQs).
  • The FMV at receipt becomes your cost basis for later sales, which are reported on Form 8949 and Schedule D.
  • If staking or validating is a business activity, rewards may be reported on Schedule C and could be subject to self-employment tax.

How to report — step by step

  1. Identify the receipt event and timestamp
  • Determine the exact date/time you received the staking reward or airdrop. Taxation depends on when you had dominion and control over the tokens.
  1. Determine fair market value (FMV) at receipt
  • Use a reliable exchange price at the receipt time. If no public market exists, document your valuation method.
  • Record the FMV in USD; that number is ordinary income for that tax year and your cost basis going forward.
  1. Report ordinary income on your return
  • Most taxpayers report this on Form 1040 as other income (Schedule 1 — “Additional Income”). If the activity rises to a trade or business (for example, running a staking node as a business), report on Schedule C and evaluate self-employment tax.
  • If tokens were received in exchange for services (including promoting or marketing airdrops), treat them as compensation and report wages or nonemployee compensation as applicable.
  1. When you later sell or spend the tokens
  • Use the FMV recorded at receipt as your basis to calculate capital gain or loss. Report sales on Form 8949 and Schedule D.

Short examples

  • Staking: You receive 0.5 ETH as a staking reward when ETH is $1,600. Report $800 as ordinary income; your basis in that 0.5 ETH is $800.
  • Airdrop: You receive 100 tokens valued at $5 each at receipt. Report $500 as ordinary income and use $500 as your basis.

Recordkeeping checklist

  • Date and UTC timestamp of receipt
  • Amount and token type
  • Exchange or market used to determine USD FMV and the price at receipt
  • Transaction IDs, wallet addresses, and screenshots or CSVs from wallets/exchanges
  • Records of any staking/validator fees or costs if you claim business expenses

Common pitfalls and professional tips

  • Don’t assume “no sale = no tax.” The IRS treats receipt of value (even if you didn’t sell) as taxable.
  • If you run a validator or staking operation at scale, consider treating it as a business; that changes reporting and can trigger self-employment tax.
  • Use crypto tax software or a qualified preparer to match timestamps and prices — it reduces errors and audit risk. In my practice, clients who keep granular timestamped records avoid most valuation disputes.

When to amend a prior return

  • If you omitted staking rewards or airdrops in a previous year, file Form 1040-X to correct income and pay any tax, interest, and possible penalties. See our guide on when and how to file an amended return for cryptocurrency errors for steps and records to include.

How the IRS views these transactions

Useful internal resources

Authoritative sources

Professional disclaimer

This article is educational and does not constitute tax advice. Rules for cryptocurrency taxation are complex and fact-specific. Consult a tax professional experienced with digital assets before filing if you have material amounts of crypto or operate a staking/validation service.