When should staking rewards be taxed? Upon receipt or when sold? Polygon writes to senators seeking legal amendment.

The Internal Revenue Service (IRS) of the United States previously advocated that users should include the value of staking rewards in their tax liabilities for the year they are received. Polygon Labs has written to senators requesting a change in the law regarding this matter.

IRS: Taxation of Staking Rewards Should be Calculated Upon Receipt

The IRS has previously attempted to clarify when users should pay taxes on staking rewards obtained through proof-of-stake.

According to a document released in August, the IRS states that staking rewards obtained through proof-of-stake should be included in the tax for that year, with the exact value calculated at the moment the user receives the token rewards.

The IRS also mentioned that this rule applies equally to investors who stake through cryptocurrency exchanges on their behalf.

The public blockchain developer, Polygon Labs, wrote a letter to Senators Ron Wyden and Mike Crapo of the Senate Finance Committee requesting legislative changes. The letter can be found here.

Polygon Labs: Suggests Taxation Only Upon Sale

Polygon Labs stated that the letter was in response to the Finance Committee's request for comments on digital asset taxation. Polygon suggests that the IRS should only tax staking rewards upon sale, rather than when they are received or accumulated by the user.

The letter also mentioned that taxing staking rewards before sale is technically biased, usually leading to over-taxation, increasing the burden on IRS administrative operations, and creating legal uncertainties that need legislative resolution.