• Republican lawmakers sent a letter to Treasury Secretary Scott Bessent requesting immediate repeal of the IRS staking rewards tax rule.

• The rule, established in 2023, classifies staking rewards as taxable income right when received, burdening crypto participants.

• Repealing it could align with treating rewards like new capital assets, taxed only on disposal, per industry advocates; staking secures networks like Ethereum and generates passive income for holders.

Discover how U.S. House Republicans push to repeal IRS staking rewards tax rules before 2026, promoting fair crypto taxation and American leadership in blockchain innovation—stay informed on staking regulations today.

What is the IRS Staking Rewards Tax Rule and Why Change It?

The IRS staking rewards tax rule, finalized in 2023, mandates that cryptocurrency staking rewards be reported and taxed as ordinary income at the moment they are received by the taxpayer. This approach contrasts with the crypto industry’s long-standing position that these rewards function more like new capital property, similar to stock dividends, and should only trigger capital gains taxes upon eventual sale or disposal. House Republicans, led by Rep. Mike Carey of Ohio, argue in a recent letter to Treasury Secretary Scott Bessent that this immediate taxation creates an undue administrative burden and discourages participation in proof-of-stake networks, potentially hindering U.S. leadership in the global crypto sector.

How Do Staking Rewards Work in Proof-of-Stake Blockchains?

Staking rewards emerge from proof-of-stake (PoS) blockchain protocols, where users lock up their tokens to validate transactions and secure the network, earning additional tokens as compensation. For instance, on the Ethereum network, participants stake ETH to help process blocks and maintain decentralization; the longer the stake is held, the more rewards accrue, often at annual yields ranging from 3% to 7%, according to data from blockchain analytics firms like Chainalysis. This mechanism has grown vital as PoS adoption expands beyond Ethereum to networks like Cardano and Solana, with total staked value surpassing $100 billion across major chains in 2025. Experts, including blockchain security researcher Laura Shin, have noted in public forums that staking not only incentivizes network integrity but also provides institutions with reliable passive income streams amid volatile markets. However, the current IRS rule complicates this by requiring immediate tax filings on unrealized gains, often at rates up to 37% for high earners, which can deter retail and institutional involvement. Proponents of repeal emphasize that reclassifying rewards as capital assets would simplify compliance, allowing taxation at lower long-term capital gains rates—typically 0% to 20%—only when tokens are sold, aligning crypto with traditional investment vehicles like bonds or equities.

Frequently Asked Questions

What Impact Would Repealing the IRS Staking Rewards Rule Have on Crypto Investors?

Repealing the IRS staking rewards rule would shift taxation from immediate income recognition to capital gains upon sale, potentially reducing tax liabilities for investors and easing reporting requirements. This change, advocated by 19 House Republicans, could boost staking participation, secure more networks, and attract institutional capital, ultimately supporting the U.S. as a crypto innovation hub without needing new legislation.

Why Are House Republicans Targeting the 2026 Tax Year for Staking Reward Changes?

House Republicans are urging action before 2026 to prevent the 2023 IRS rule from solidifying into permanent guidance for the upcoming tax year. This timing allows the Trump administration to revise rules administratively, avoiding congressional delays, and sets a foundation for broader crypto tax reforms, ensuring fair treatment that encourages staking as a core blockchain security practice.

Key Takeaways

• Urgent Call for Repeal: A group of 19 Republican lawmakers has formally requested Treasury Secretary Scott Bessent to overturn the 2023 IRS rule taxing staking rewards as income upon receipt, aiming to prevent its enforcement starting in 2026.
• Industry Benefits: Treating staking rewards as capital property would align crypto taxation with traditional assets, reducing burdens and promoting network security through increased participation, as highlighted by Rep. Mike Carey.
• Broader Implications: This push could pave the way for comprehensive crypto tax legislation in 2025, enhancing U.S. competitiveness in blockchain technology and encouraging institutional staking for passive income generation.

Conclusion

In summary, the push by House Republicans to repeal the IRS staking rewards tax rule underscores a pivotal moment for crypto staking regulations, balancing fiscal oversight with innovation incentives. By reclassifying rewards as capital assets, the U.S. could solidify its position as the world’s crypto capital, fostering secure, decentralized networks like Ethereum while easing compliance for participants. As discussions intensify ahead of 2026, stakeholders should monitor Treasury actions closely—engaging with policymakers now could shape a more equitable framework for the evolving digital asset landscape.

The letter from Rep. Mike Carey and colleagues to Secretary Bessent arrives amid growing momentum in the crypto sector for regulatory clarity. Staking, a cornerstone of PoS systems, has seen explosive growth; Ethereum alone boasts over 30 million ETH staked, valued at more than $80 billion as of late 2025, per on-chain data. This mechanism not only validates transactions efficiently—consuming far less energy than proof-of-work alternatives—but also democratizes network maintenance, allowing anyone with tokens to contribute to security.

Critics of the current rule point to its misalignment with economic reality. When a user stakes tokens, they receive new ones that haven’t yet generated realizable value until traded, much like interest accruing in a savings account isn’t taxed until withdrawn. The administrative load of tracking and reporting fluctuating rewards, especially for validators running nodes, can be overwhelming for individuals without sophisticated tax software. According to a 2024 report by the Blockchain Association, nearly 40% of potential U.S. stakers cited tax complexity as a barrier to entry, potentially stunting domestic adoption compared to jurisdictions like Singapore or Switzerland with more favorable policies.

Rep. Carey’s involvement builds on prior successes, including the 2025 repeal of IRS reporting mandates for decentralized finance (DeFi) platforms, which alleviated burdens on non-custodial protocols. That victory demonstrated the administration’s capacity for targeted reforms, and the staking letter invokes similar rationale: protecting American leadership requires policies that reward, rather than penalize, participation in emerging technologies. The missive specifically warns that overtaxation risks driving talent and capital overseas, where countries are racing to establish crypto-friendly regimes.

Recent developments bolster the case for change. In 2025, the Treasury Department approved staking yields for spot crypto ETFs, enabling Wall Street products to offer competitive returns to retail investors—a move projected to channel billions into staked assets. Firms like BlackRock and Fidelity have already integrated staking into their offerings, with yields enhancing ETF appeal amid low-interest environments. Yet, for individual stakers outside these vehicles, the IRS rule remains a hurdle, creating a two-tiered system that disadvantages direct participants.

Behind the scenes, coordination between lawmakers and industry groups has intensified. Sources indicate that while initial hopes rested on figures like Bo Hines—former executive director of the Trump crypto working group—their transition to private sector roles, such as at Tether, has refocused efforts through congressional channels. This week’s letter represents a strategic escalation, timed to influence year-end rulemaking and inform upcoming House tax bill drafts. By undoing the guidance now, legislators gain flexibility to craft holistic reforms, potentially incorporating provisions for other digital assets like NFTs or layer-2 solutions.

From a global perspective, the U.S. stakes much on getting this right. With China banned from mining and Europe tightening MiCA regulations, America’s pro-innovation stance could draw developers and capital. Economists like those at the Federal Reserve have acknowledged in working papers that clear tax treatment accelerates fintech growth; applying this to staking could add trillions to the sector’s valuation over the decade. As one anonymous policy expert remarked, “Fair rules aren’t just about revenue—they’re about retaining the next generation of tech leaders.”

Investors navigating this uncertainty should consult tax professionals for compliant strategies, such as holding staked assets in tax-advantaged accounts where possible. Meanwhile, the crypto community watches eagerly, knowing that regulatory alignment could unlock staking’s full potential as a bedrock of Web3 infrastructure.