Can You Take Your Paycheck in Cryptocurrency?
Pros and cons around Bitcoin payment as an employee
By Judy Malmon, J.D. | Reviewed by Canaan Suitt, J.D. | Last updated on June 18, 2024 Featuring practical insights from contributing attorney Kevan P. McLaughlinUse these links to jump to different sections:
Early adopters, tech geeks, and those opposed to governmental monetary control are excited about cryptocurrency and a crypto wallet. There are thousands of cryptocurrencies, many of which are traded on the blockchain—an international network of verifying nodes that proponents believe is safer than banks.
As virtual currency begins moving from the fringes toward a mainstream monetary exchange platform, new questions arise. For example, can you get paid by your employer in Bitcoin or another cryptocurrency? And if so, is that the same as being paid in U.S. dollars?
A few employers are dipping their toes into these uncharted waters, and some intrepid employees or contractors are seeking out their own setup for cyber pay. The medium will continue to evolve, but for now, there are some risks.
Wage and Hour Rules
Under 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 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 require that receipt of payment 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 Laws
Whether 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 receive. “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 when you receive it to when 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 Implications
In January 2024, the U.S. Securities and Exchange Commission (SEC) approved the first U.S. exchange-traded funds (ETFs) to track Bitcoin despite continued concerns regarding the volatility of digital assets.
Getting Legal Help
Taking your paycheck in cryptocurrency currently will require a pretty strong tolerance for risk. If the benefits of this type of arrangement appeal to you and you want a crypto paycheck, be sure to consult with an experienced attorney who is well-versed in employment and tax law. For more information about this area, see our overview of wage and hour laws.
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