Do you have to report ETH staking? Ethereum staking and tax guide for 2025

Ethereum (ETH) investors aren’t just waiting for a price surge to grow their holdings. Since the Beacon Chain launched in December 2020, ETH holders have been able to stake their coins and earn rewards. Then, in September 2022, Ethereum transitioned from proof-of-work (PoW) to proof-of-stake (PoS) in an upgrade known as the Merge, making staking even more accessible – whether directly on Ethereum or through centralized exchanges (CEXs).

But while staking ETH is easier than ever, it’s not without risks, and it comes with tax implications. In this guide, we'll explain how ETH staking works and weigh the potential rewards against the drawbacks before jumping in.

What’s behind Ethereum’s proof-of-stake transition?

Ethereum’s shift from PoW to PoS centered on two goals: scalability and sustainability. 

Under its old PoW model, Ethereum relied on miners using powerful GPU units to solve cryptographic puzzles and confirm transactions. While this method was secure, it came with serious trade-offs: high energy consumption, costly hardware requirements, and limits on how fast the network could grow. PoW blockchains like Bitcoin (BTC) or Dogecoin (DOGE) are among the biggest energy consumers in crypto, making them the least environmentally friendly options.

Moving to a PoS protocol didn’t instantly fix Ethereum’s scalability issues, but it created a foundation for future upgrades. Unlike PoW, which relies on energy-intensive mining hardware, PoS lets validators lock (or "stake") ETH to secure the network and process transactions. This shift slashed Ethereum’s energy use by nearly 100% and paved the way for upgrades like sharding that aim to increase transaction speed and reduce gas fees.

What does the Merge mean for users?

The Merge didn’t drastically change how most Ethereum users interact with the blockchain. Everything kept running smoothly – wallets, decentralized applications (dApps), and transactions all functioned as usual, with no major disruptions. But while the user experience remained unchanged, the Merge brought about some big changes to Ethereum’s tokenomics and staking system.

Before the Merge, Ethereum issued about 13,000 ETH per day to validators. That number dropped to roughly 1,700 ETH daily, significantly reducing the amount of new ETH entering circulation. On top of that, Ethereum’s built-in burning mechanism, which removes a portion of ETH with every transaction, sometimes makes the network deflationary – potentially influencing ETH’s long-term price dynamics.

Another key change came with the Shanghai Upgrade in 2023, which finally allowed stakers to withdraw their ETH. Before this update, anyone who staked ETH on the Beacon Chain had to keep it locked up indefinitely. Now, validators can "unstake" their ETH and claim their original deposit and any earned rewards.

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How to stake Ethereum: ETH staking options 

At its core, staking ETH means locking up Ether in a smart contract on Ethereum’s mainnet to help secure the network. In return, stakers earn ETH rewards for validating transactions. But not everyone who stakes Ethereum has to run a full validator node – there are different ways to participate, each with its own requirements, fees, and responsibilities.

Solo staking

Running a full Ethereum validator node requires having a minimum of 32 ETH (nearly $9,000 at the time of writing) and the ability to keep Ethereum’s software running 24/7. While solo staking offers the highest reward potential, it also comes with significant financial and technical responsibilities. Validators who fail to meet their duties risk losing their staked ETH due to slashing penalties.

Solo staking pros

• Maximum control: Solo stakers don’t rely on third-party services, meaning they avoid counterparty risks and maintain full control over their ETH.
• Full rewards: Unlike other staking methods, solo stakers keep 100% of their earnings, aside from gas fees, without paying fees to staking providers.
• Decentralization: Every independent validator helps strengthen Ethereum’s goal of becoming a globally distributed, peer-to-peer supercomputer.

Solo staking cons

• High barrier to entry: The 32 ETH requirement is a significant financial commitment, and full node operators have to pay extra for electricity, hardware, and system maintenance.  
• Technical expertise: Running a validator node isn’t plug-and-play. Setting up and keeping things running smoothly requires a solid grasp of Ethereum’s infrastructure.
• Constant monitoring: Validators must keep their system online and secure at all times. If there’s downtime, glitches, or errors, they risk slashing penalties and losing ETH.

Pooled staking

Not everyone has the 32 ETH needed to run a validator node, but that doesn’t mean they can't participate in staking. With staking pools, investors can combine smaller amounts of ETH to form full validator nodes. This way, even those with less ETH can participate and earn rewards, though they typically pay a fee for the service. Some CEXs like Coinbase and Gemini make it easy to stake ETH and earn rewards directly from a trading account.

Pooled staking pros

• Easy to use: No technical expertise is required. Many staking pools let users stake ETH with just a few clicks, often through a CEX account.
• More affordable: While some pools have a minimum requirement, it’s much lower than 32 ETH, making staking accessible to more investors.
• Less responsibility: Delegators don’t have to worry about keeping a validator node online 24/7. The staking pool handles validation and distributes rewards.

Pooled staking cons

• Counterparty risks: Delegating ETH means trusting a staking provider. If the platform is hacked or penalized for poor validation, users could lose funds. 
• Extra fees: Staking pools take a cut of earnings, so it’s important to check how much is deducted before calculating potential returns.
• Centralization concerns: Some worry that staking pools give too much influence to a handful of players, which could impact Ethereum’s governance and long-term decentralization.

Liquid staking 

Liquid staking is a spin on pooled staking that lets users earn rewards while still having access to their ETH. Instead of locking funds in a staking pool, decentralized protocols like Lido issue synthetic tokens – such as Lido Staked Ethereum (stETH) – that mirror the value of staked ETH.

With stETH in their wallets, investors can use their staked funds across DeFi – whether for crypto loans, liquidity pools, or even “restaking” to potentially earn additional rewards. When they’re ready to withdraw, users simply swap their stETH back for ETH through the staking protocol.

Liquid staking pros

• 24/7 access to funds: Unlike traditional staking, liquid staking lets users earn rewards without locking up their ETH. The synthetic token can be used across Web3 while still accumulating staking rewards.
• Potential for higher returns: Yield farmers and DeFi enthusiasts use liquid staking to compound rewards by putting tokenized ETH to work in liquidity pools, lending platforms, or other staking protocols.
• No centralized intermediaries: Platforms like Lido and Rocket Pool are decentralized, running on smart contracts rather than centralized entities. This supports Ethereum’s push for decentralization and eliminates the need to trust a third party with funds.

Liquid staking cons

• Smart contract risks: Liquid staking depends on well-written smart contracts. If there’s a bug or security flaw, funds could be vulnerable to hacks or exploits.
• Depegging concerns: Synthetic tokens don’t always hold a perfect 1:1 value with ETH. Liquidity issues or technical problems can cause price fluctuations. Liquidity shortages or technical problems can cause liquid staking tokens to lose parity, potentially affecting redemption value.
• Greater tax complexity: Since liquid staking is relatively new, tax rules aren’t always clear. Keeping track of cost basis, fair market value (FMV), and potential taxable events – such as swapping ETH for stETH – adds another layer of complexity.

What are the tax implications of staking Ethereum? ETH tax classifications

Tax rules for Ethereum staking vary by country – in the U.S., the IRS considers Ethereum staking rewards taxable income. If you’re staking ETH through a centralized exchange (CEX) like Coinbase, you’ll likely receive a 1099-MISC form if your rewards exceed $600 for the year. If not, you’re still required to report the earnings as “Other Income” on a Schedule 1 form, including the FMV at the time of receipt. Businesses involved in ETH staking must file under Schedule C, with rewards taxed at the standard income tax rate.

Selling (or disposing of) staked ETH rewards triggers capital gains or losses, depending on the sale price. The FMV at the time you receive ETH becomes your cost basis, which you compare against the sale price to determine your taxable gain or loss. If you sell within a year, short-term capital gains tax applies. Holding for over a year qualifies for lower long-term capital gains rates.

Liquid staking adds another layer of tax complexity. For example, if you stake ETH through Lido and receive stETH, then use that stETH in a liquidity pool for extra rewards, you may need to report both the staking rewards and the liquidity pool earnings as taxable income. Swapping stETH for another asset or fiat currency also counts as a capital gains event.

To help you stay organized and avoid costly mistakes, crypto tax software like CoinTracker tracks cost basis, FMV, and taxable events. Consulting a crypto-savvy CPA with experience in ETH staking is another option worth considering.

Ready to stake your ETH? Simplify tracking and taxes with CoinTracker

Whether you’re staking Ethereum, Solana (SOL), or another popular PoS coin, keeping tabs on your crypto transactions doesn’t have to be a headache. With CoinTracker’s Portfolio Tracker, you can link your exchange APIs and wallets to see your entire crypto portfolio in one place. CoinTracker also supports 50,000+ smart contracts, making it easy to track every Web3 interaction and ensure accurate tax reporting.

Discover how CoinTracker can help you with your tax reports by signing up for a free account today.  

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.