Tax impact of ETH and cbETH (After the Shanghai and Capella Upgrades)

Disclaimer:

Coinbase doesn’t provide tax advice. Taxable income is accrued in dollars but ETH staking and cbETH are held in crypto with changing prices. You may want to plan ahead to be prepared for your 2023 taxes.

The Shanghai and Capella Upgrades, collectively known as Shapella, enabled you to unstake your staked ETH and ETH rewards for the first time since ETH staking was introduced in December 2020. Starting April 25, 2023, Coinbase  reports rewards earned from staking ETH and holding cbETH as taxable income (subject to future guidance from the IRS). Before the enablement of unstaking, staking rewards were not considered taxable since you were unable to sell or realize earned rewards.

Since customers were able to earn rewards from staked ETH and cbETH prior to Shapella, Coinbase also reports a one-time income event in 2023 to recognize historical rewards earned since staking was launched. Therefore, rewards accrued in 2022 or earlier may be included on Form 1099-MISC for 2023. (Note that Coinbase only issues Form 1099-MISC to users who earn $600 or more in miscellaneous income on Coinbase.) Coinbase does this reporting to meet an IRS requirement that the rewards be reported when and only when you have control over them--meaning you can unstake and/or sell them.

How staking ETH and holding cbETH are taxed

Subject to future guidance from the IRS, your ETH staking rewards and cbETH rewards are considered income. See the table below for a summary. For more information on cbETH, see Coinbase Wrapped Staked ETH (cbETH) taxes.


Taxed

When

How

Consider

ETH staking

One-time taxable event for rewards prior to Shapella, then a new taxable event for each reward paid out

Historical rewards were recognized April 25, 2023. Ongoing rewards are recognized at the time of the reward payout.

Summed up and reported as income, using the market price of ETH  on April 25, 2023, which was about $1,840.

This could be a significant amount of rewards that will be recognized as income.

Holding cbETH

One-time taxable event for rewards prior to Shapella, then a new taxable event for each increase in the cbETH conversion rate

Historical rewards were recognized April 25, 2023. Ongoing rewards are taxable at the time the cbETH conversion rate increases.


Summed up and reported as income using the market price of ETH and conversion rate of cbETH to ETH as of  April 25, 2023, which was about 1.034.

This only applies if you hold your cbETH in your Coinbase account.

Note that wrapping and unwrapping cbETH generally are not considered taxable events, and selling cbETH is taxed as capital gain or loss.

Expectations for a 1099

Coinbase issues 1099-MISCs for when all miscellaneous income earned is at least $600. For 2023, if your income earned from staked ETH rewards and holding cbETH along with any other taxable income exceeds $600, you’ll receive a 1099-MISC. 

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