Can You Take Your Paycheck in Cryptocurrency?
Bitcoin has some present-day legal uncertaintiesBy Judy Malmon, J.D. | Last updated on January 20, 2023
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Wage and Hour RulesUnder the Fair Labor Standards Act (FLSA), all employees must be paid at least the minimum wage. The value of crypto payments can fluctuate wildly, meaning there’s a good a chance it doubles or loses half its value between the time you get paid and when you spend it. Furthermore, some states have laws explicitly stating that payment must be made in U.S. currency, and some have requirements that receipt of pay not require payment of any fees. It’s unclear at this time whether pay in crypto would pass under either the FLSA or state wage laws.
Tax LawsWhether you’re paid in U.S. currency, virtual currency or anything else, you still need to pay income tax on the value of what you received. “If you’re paid in bitcoin, or a crypto salary then it’s taxed as ordinary income,” says San Diego tax lawyer Kevan McLaughlin. “You work for 40 hours and I give you a crypto coin, you have taxable income of the value of the crypto coin at the time that I give it to you.” In addition, the IRS has stated that any cryptocurrency you hold onto will be viewed as a capital crypto asset. This means that if your coin increases in value from the time you receive it to the time you exchange it, you may have capital gains taxes on your profits. Using your digital currency for purchases or trading for another currency will also be considered a taxable event, in terms of reportable gains and losses. Additionally, holding onto your coinbase is not taxable—meaning that, until you sell them on the cryptocurrency exchange, spend it or trade it, there is no tax consequence. Keep in mind that the IRS has identified unreported virtual assets and crypto transactions as a focal point of investigation. Trying to outsmart the system isn’t a wise strategy.
Potential Securities ImplicationsTo date, the Securities Exchange Commission (SEC) has not approved any digital currency, negotiable instrument or initial coin offering (ICO) as a registered security due to the volatility of digital assets. However, the SEC has issued a public statement warning of the risks of unlicensed trades, trade occurring outside of the U.S., and the potential for running afoul of U.S. securities laws in this arena. Taking your paycheck in cryptocurrency currently will require a pretty strong tolerance for risk. If the benefits of this type of arrangement appeals to you and you want a crypto paycheck, be sure to consult with an experienced attorney who is well-versed in the realm of employment, tax and securities implications for the virtual currency realm. For more information about this area, see our overview of wage and hour laws.
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