US Lawmakers Push to End Crypto Staking Double Taxation Before 2026

A growing coalition of US lawmakers is taking aim at what they call unfair crypto staking taxes, pushing for urgent reforms that could reshape how millions of Americans are taxed on their digital asset activities. The bipartisan effort highlights a critical issue that has long plagued the cryptocurrency community: unclear and potentially punitive tax treatment of staking rewards.

Bipartisan Push for Crypto Tax Reform

According to Cointelegraph, a group of 18 House lawmakers led by Republican Mike Carey are urging the Internal Revenue Service (IRS) to revise current crypto staking tax rules. The legislators argue that existing regulations create an unnecessary administrative burden while potentially subjecting crypto users to double taxation on unrealized gains.

This bipartisan initiative represents a significant shift in how Congress approaches cryptocurrency regulation. Rather than viewing crypto through a purely regulatory lens, lawmakers are beginning to recognize the practical challenges that current tax policies create for everyday users and the broader digital asset ecosystem.

The timing is crucial, as the current tax treatment of staking rewards has created confusion and compliance challenges for the estimated 50+ million Americans who own cryptocurrency. With DeFi (Decentralized Finance) protocols continuing to grow in popularity, the need for clear, fair tax guidance has become increasingly urgent.

Understanding the Current Crypto Staking Tax Problem

What is Crypto Staking?

Crypto staking involves locking up digital assets in a blockchain network to help validate transactions and secure the network. In return, participants receive staking rewards, typically in the form of additional cryptocurrency tokens. Popular staking cryptocurrencies include Ethereum, Solana, Cardano, and Polkadot.

The Double Taxation Issue

Under current IRS guidance, crypto staking taxes create what critics call a "double taxation" scenario:

1. Immediate Taxation: Staking rewards are treated as ordinary income at fair market value when received
2. Capital Gains Taxation: When stakers eventually sell their rewards, they face additional capital gains taxes on any appreciation

This approach differs significantly from traditional investment vehicles like dividend-paying stocks, where investors only pay taxes when they actually sell their shares for a profit.

Administrative Burden Challenges

The current system creates several practical problems for crypto users:

• Record-keeping nightmares: Stakers must track the fair market value of rewards received daily or weekly
• Unrealized gains taxation: Users owe taxes on rewards they may never sell or that may lose value
• Compliance complexity: Small-scale stakers face the same reporting requirements as large institutional players

Real-World Impact on DeFi Participation

The current crypto staking tax rules have tangible effects on how Americans participate in the digital asset economy. Many retail investors report avoiding staking altogether due to tax complexity, while others struggle with compliance despite wanting to participate in network security.

Barriers to Entry

The administrative burden particularly affects smaller investors who lack the resources to hire tax professionals. This creates an uneven playing field where only sophisticated investors can easily navigate staking activities, potentially limiting broader crypto adoption.

Innovation Concerns

Complex tax treatment also impacts innovation in the DeFi space. Developers and protocols must consider tax implications when designing new staking mechanisms, potentially slowing the development of more efficient or user-friendly systems.

Broader Context: Crypto Tax Reform Momentum

Growing Bipartisan Support

This latest initiative builds on increasing bipartisan recognition that crypto tax policy needs modernization. Previous efforts have included:

• The Virtual Currency Tax Fairness Act
• Various proposals to increase de minimis thresholds for crypto transactions
• Calls for clearer guidance on DeFi taxation

International Competitiveness

Other jurisdictions have taken more crypto-friendly approaches to staking taxation. The European Union and several other countries treat staking rewards more favorably, potentially putting US innovation at a competitive disadvantage.

What Changes Could Mean for Crypto Users

Potential Benefits of Reform

If lawmakers succeed in pushing through crypto tax reform, the benefits could be substantial:

• Simplified compliance: Clearer rules would reduce the administrative burden on individual stakers
• Fairer taxation: Eliminating double taxation could make staking more attractive to retail investors
• Increased participation: Simpler tax treatment could encourage broader participation in network security
• Innovation boost: Clearer rules could spur development of new DeFi products and services

Economic Implications

Improved tax treatment of staking could have broader economic effects:

• Increased network security as more users participate in staking
• Greater capital allocation efficiency in the crypto ecosystem
• Enhanced US competitiveness in the global digital asset market

Challenges and Opposition

Implementation Hurdles

Despite bipartisan support, several challenges remain:

• IRS capacity: The tax agency would need to develop new guidance and enforcement mechanisms
• Revenue concerns: Simplified taxation might reduce government revenue in the short term
• Complexity of DeFi: The rapidly evolving nature of DeFi makes it difficult to create comprehensive rules

Regulatory Coordination

Tax reform efforts must coordinate with broader crypto regulatory initiatives from agencies like the SEC and CFTC to avoid creating conflicting requirements.

Looking Ahead: What to Watch

Timeline and Process

With the 2026 deadline mentioned by lawmakers, several key developments bear watching:

• IRS response: How quickly the tax agency responds to congressional pressure
• Legislative action: Whether Congress will pursue formal legislation if the IRS doesn't act
• Industry engagement: How crypto companies and trade associations support reform efforts

Broader Crypto Policy Implications

This staking tax initiative could signal broader shifts in how US policymakers approach cryptocurrency regulation. Success here might pave the way for additional crypto-friendly policy changes.

Global Competitive Dynamics

How the US handles crypto staking taxes could influence its position in the global competition for digital asset innovation and investment.

The Path Forward

The push to fix crypto staking double taxation represents more than just a technical tax issue—it's a test of whether US policymakers can adapt regulatory frameworks to support innovation while maintaining appropriate oversight. With bipartisan support growing and the crypto economy continuing to mature, the next two years could prove pivotal for establishing fair, clear tax treatment of digital asset activities.

For the millions of Americans already participating in crypto staking or considering it, these developments offer hope for a more rational, user-friendly tax environment. However, until changes are implemented, crypto users should continue to maintain careful records and consider consulting tax professionals to ensure compliance with current rules.

The outcome of this legislative push will likely influence not just how Americans are taxed on their crypto activities, but also how the US positions itself in the global digital asset economy for years to come.