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. |
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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