House Republicans Call on IRS to Revise Crypto Staking Tax Rules Before 2026

House Republicans have formally urged the Internal Revenue Service (IRS) to revise its tax treatment of crypto staking rewards before the end of 2025, citing concerns that current rules impose excessive tax burdens on investors. This push comes amid broader debates on how to integrate decentralized finance (DeFi) activities into existing tax frameworks without hindering innovation.

What happened

House Republicans issued a formal request calling on the IRS to overhaul its tax rules governing crypto staking. Currently, the IRS treats staking rewards as ordinary income at the moment they are received, regardless of whether the investor sells or converts those rewards. This approach can create immediate tax liabilities for holders who have not liquidated their staking returns, effectively taxing unrealized income.

This call for revision is part of ongoing legislative and regulatory discussions aimed at better aligning tax policy with the unique characteristics of DeFi and proof-of-stake blockchain networks. Congressional hearings and statements, particularly from the House Financial Services Committee, have highlighted the need to adapt tax rules to prevent discouraging participation in staking activities.

Independent crypto tax experts and organizations, including Coin Center and the Tax Foundation, have noted that the current tax treatment may deter investors from engaging in staking, which could negatively affect the liquidity and security of proof-of-stake networks. Some interpretations suggest that the proposed revisions would shift taxation to a realization event model—taxing staking rewards only upon sale or liquidation—thereby improving investor cash flow and reducing complexity.

At the same time, there is recognition that revising tax rules could enhance regulatory clarity and legitimacy for DeFi, potentially encouraging more institutional involvement. However, this may also lead to increased IRS oversight and reporting requirements, which could challenge the decentralized and pseudonymous nature of many staking platforms.

Why this matters

The IRS’s current approach to staking rewards taxation has significant structural implications for the crypto market, particularly for proof-of-stake networks that rely on investor participation for network security and liquidity. By taxing rewards immediately upon receipt, investors face tax obligations without necessarily having the liquidity to pay them, which could discourage staking and slow adoption of DeFi innovations.

Revising the tax rules to a realization-based model could align crypto staking more closely with traditional investment income taxation, potentially making staking more attractive by deferring tax until investors convert or sell their rewards. This could increase staking participation, bolstering network security and liquidity, and fostering a more vibrant DeFi ecosystem.

Moreover, clearer and more fitting tax rules could reduce uncertainty for investors and institutional players, helping to integrate DeFi activities into mainstream finance. Conversely, the introduction of more rigorous IRS reporting and compliance measures might complicate the decentralized ethos of these platforms, raising questions about enforcement and privacy.

What remains unclear

Despite the public call from House Republicans, the precise nature of any IRS revisions remains unknown. It is unclear whether the IRS will adopt a realization event model or retain the current receipt-based taxation. No official IRS proposals or draft rules have been released detailing potential changes.

Additionally, the direct quantitative impact of current tax rules on staking participation and market liquidity is not well documented. Available assessments are largely qualitative or anecdotal, limiting the ability to draw firm conclusions about causality between tax treatment and investor behavior.

The timeline and procedural steps the IRS will follow in response to this request are also unspecified. While the request urges action before 2026, no formal rulemaking process or schedule has been announced.

Finally, how revised tax rules will reconcile with the decentralized, often pseudonymous nature of many DeFi staking platforms remains an open question, particularly regarding enforcement, compliance, and reporting requirements.

What to watch next

IRS announcements or formal proposals regarding revisions to crypto staking tax rules, especially any move toward a realization event taxation model.
Congressional or regulatory committee updates that might clarify legislative intent or influence IRS rulemaking on crypto taxation.
Analysis and commentary from independent crypto tax experts and organizations on any proposed IRS changes.
Data or studies providing empirical insights into how current tax rules have affected staking participation and network liquidity.
Broader regulatory developments from the SEC, Treasury Department, or other agencies that may intersect with IRS actions on DeFi and crypto taxation.

The call by House Republicans to revise IRS crypto staking tax rules highlights ongoing tensions between regulatory frameworks and the evolving decentralized finance ecosystem. While the impetus for change is clear, significant uncertainties remain regarding the specifics of any tax reform, its timing, and its broader market impact. As policymakers and regulators navigate these issues, the outcome will be critical for shaping the future of crypto staking and DeFi innovation.

Source: https://decrypt.co/353047/house-republicans-urge-irs-overhaul-crypto-staking-tax-rules-before-2025-ends. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.