The Shanghai and Capella Upgrades, collectively known as Shapella, enables you to unstake your staked ETH for the first time since ETH staking was introduced in December 2020. When fulfillment of unstaking requests begins, Coinbase will consider 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 was not considered taxable since you were unable to sell or realize earned rewards.
How ETH staking and hold cbETH is taxed
Subject to future guidance from the IRS, your ETH staking rewards and cbETH rewards are considered income.
You will see staked ETH or cbETH reported as income on your end of year reports as of the day when unstaking is first supported by Coinbase. Although unstaking is enabled by the Shapella Upgrade, Coinbase will need additional time to enable unstaking on our platform. This will follow after Ethereum's Shapella Upgrade is complete.
Taxed | When | How | Consider | |
ETH staking | One-time taxable event | On the date when fulfillment of unstaking requests begins | Summed up and reported as income, using the market price of ETH as of this date | This could be a significant amount of rewards that will be recognized as income |
Holding cbETH | One-time taxable event | On the date when fulfillment of unstaking requests begins | Summed up and reported as income using the market price of ETH and conversion rate of cbETH to ETH as of this date | This only applies if you hold your cbETH in your Coinbase account at the time of the upgrade |
Tax impact of staked ETH that is wrapped and held and cbETH
This breaks down into two different pieces of taxable income:
Staked ETH rewards, based on however long you had staked ETH
cbETH income, based on however long you had cbETH
Meaning:
Rewards earned from your staked ETH are taxable as income as of the day when unstaking is first supported by Coinbase, for as long as you held your staked ETH even if you do not unstake your ETH on this day.
As soon as you wrapped your staked ETH into cbETH, that cbETH incurs taxable income when the underlying rewards become available for unstaking
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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