Here's a fun Washington deadline nobody's talking about: If Congress and the IRS don't move fast, a relatively obscure 2023 tax rule on cryptocurrency staking could become the default law of the land for years to come. And Republicans really don't want that to happen.
The Clock Is Ticking on Staking Tax Policy
Late Thursday, nineteen House Republicans fired off a letter to Treasury Secretary Scott Bessent with a simple message: kill the IRS guidance that treats staking rewards as taxable income the moment you receive them. Their concern isn't just philosophical. If the rule stays on the books through the end of 2025, it becomes baked into 2026 tax filings, making it much harder to undo later.
The rule in question applies to proof-of-stake networks like Ethereum (ETH), where participants lock up their tokens to help secure the blockchain and earn rewards in return. Under current IRS guidance, those rewards get taxed at their fair market value as soon as you can sell or transfer them. Temporary lockups might delay the tax hit, but they don't eliminate it.
Why This Tax Treatment Drives Crypto Advocates Crazy
The IRS relies on Section 61 of the tax code, which treats staking rewards as ordinary income. Sounds straightforward, right? Not to the crypto industry. Their argument goes like this: you're being taxed on assets before you've actually realized any gains. If you stake tokens, earn rewards, but don't sell them, you still owe taxes based on their value when received. That creates a cash-flow headache, especially if the market tanks before you liquidate.
Representative Mike Carey of Ohio, who spearheaded the House letter, says the current framework actively discourages people from participating in network security. The administrative burden and tax exposure are just too high. Carey and his colleagues want staking rewards treated as newly created property, taxable only when sold, similar to how capital assets work.
"Network security and American leadership require taxpayers to stake those tokens," the letter stated, warning that the administrative burden and potential overtaxation are reducing participation.
Senate Republicans Join the Push
The House isn't alone. Senator Todd Young of Indiana has previously urged the IRS to reconsider the 2023 guidance, according to Bloomberg. Young's concern is that the rule creates uncertainty for taxpayers and could complicate upcoming digital asset legislation that's supposedly in the works.
Democrats, however, aren't buying the industry's argument. Senator Tina Smith of Minnesota has defended the IRS position in past hearings, saying that staking rewards function as compensation for services. Under that logic, taxing them when received makes sense because that's how the U.S. treats other forms of compensation.
Staking Goes Mainstream Just as the Tax Fight Heats Up
The timing of this debate is notable. Staking has moved from crypto-native platforms to Wall Street. Last month, the Treasury Department approved staking activity within certain cryptocurrency products traded on traditional exchanges. That means more institutional money flowing into staking, and more investors potentially affected by the tax rule.
Industry lobbyists argue that reversing the guidance before year-end would give lawmakers a cleaner slate to draft a comprehensive crypto tax framework in early 2026. Without action, they warn, the existing rule could shape legislation simply by default, locking in a tax treatment that many in the industry consider fundamentally flawed.
So now we wait to see if the Trump administration and Treasury take the bait before the calendar runs out.