Crypto Staking Rewards Abroad: US Tax Treatment

The IRS ruled in Revenue Ruling 2023-14 that staking rewards are taxable as ordinary income in the year they are received, valued at their fair market value at the time of receipt. For US expats who stake cryptocurrency while living abroad, those staking rewards may be treated as foreign earned income if you are actively performing services to validate transactions, which would allow you to apply the Foreign Earned Income Exclusion. Passive staking, where your cryptocurrency is simply locked up in a proof-of-stake protocol and rewards arrive automatically, may be treated more like investment income and not qualify for the FEIE. When you sell the staking rewards later, the gain or loss is calculated from your basis, which equals the fair market value at the time they were received, and that second transaction is a capital gain or loss. Expats who hold cryptocurrency on foreign exchanges should also review their FBAR and Form 8938 reporting obligations on those accounts, since foreign crypto exchange accounts may need to be disclosed.