Validation rewards are the units a proof-of-stake network issues to a validator for proposing or attesting to blocks. They are the protocol's own payment for validation work, made up of newly issued units and, on many networks, a share of the transaction fees in the blocks validated.
A proof-of-stake chain chooses which validator produces the next block by weight of stake, and rewards the validators that propose blocks and attest to them correctly. The reward has two parts on most networks. Issuance is new supply the protocol creates for the purpose. Fees and tips are paid by the users whose transactions went into the block, and on Ethereum they reach the validator through a separate route from issuance. Penalties run the other way: a validator that goes offline or signs conflicting blocks earns less or is slashed.
Validation rewards are the source of every other staking return. A delegator's reward is a share of the validator's, net of commission. An exchange's staking rate is the validation reward its validators earned, less what the exchange keeps. The term is worth keeping distinct from staking rewards generally: validation rewards are what the protocol pays, and staking rewards are whatever reaches you after the arrangement you staked through has taken its share.
As ordinary income at fair market value. Revenue Ruling 2023-14 addresses this exact case: a cash-method taxpayer who stakes cryptocurrency native to a proof-of-stake blockchain and receives additional units as rewards when validation occurs includes the fair market value of those units in gross income in the taxable year in which the taxpayer gains dominion and control over them. The ruling reaches that result through Section 61, which brings in income from whatever source derived, and Notice 2014-21, which treats the units as property.
Issuance and fee rewards are both units received for validation, and both are valued and included on the same footing. Rewards earned by running your own node are covered under validator staking, where the question of whether the activity is a trade or business also arises.
The included amount becomes the basis of the reward units, and their holding period starts when they are received. Selling, swapping or spending them later is a separate capital gain or loss against that basis, covered under staking reward disposal.
The record that supports the figure is per reward: when control arose, how many units, the USD value at that time and the source of that value. On a chain paying per epoch, that is many hundreds of lines a year for one validator.
Two reward streams, one of them missing. On Ethereum, issuance accrues on the consensus layer and is swept to the withdrawal address automatically, while fees and tips are paid on the execution layer to the fee recipient address, which need not be the same address. An import that reads only the withdrawal address reports the issuance and none of the fees; one that reads only the fee recipient does the reverse. Either way the income for the year is understated and the missing units later appear as unexplained deposits or a balance that does not reconcile.
Read our Are Crypto Staking Rewards Taxed? Yes, Here's How in 2026
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