Can You Take Your Paycheck in Cryptocurrency?

Early adopters, tech gurus, and people who don’t want government monetary control are excited about cryptocurrency and crypto wallets. As virtual currency begins moving from the fringes toward a mainstream monetary exchange platform, there are still limits on getting digital payments.

Some employees want to know if they can get paid in Bitcoin or another cryptocurrency. A few employers are dipping their toes into these uncharted waters. However, federal and state laws may limit payments in any form other than the U.S. dollar or equivalent. For legal advice on getting your paycheck in cryptocurrency, talk to an employment lawyer about your options.

Understanding Cryptocurrency and Payroll

Many tech-savvy workers and freelancers prefer to get their payment in cryptocurrency. With a crypto account, money can go to your digital wallet faster and more securely than traditional forms of payment. Some employers also want to use cryptocurrency payments for payroll, especially when they have a global workforce.

There are thousands of cryptocurrencies. Many use blockchain technology, which consists of an international network of verifying nodes that proponents believe are safer than banks. However, worker payments in the U.S. generally rely on the dollar, and it is up to individuals to convert their payments to crypto.

Before changing from direct deposits through a bank account to cryptopayments, make sure you should understand how cryptocurrency works. There are always benefits and risks when taking payments in Bitcoin or other digital currencies. For example, the value of crypto payments can fluctuate wildly. With some blockchain technology payments, the value could double or lose half its value between the time you get paid and when you spend it. Crypto stablecoins are generally less volatile because they are tied to a fiat currency, like the Euro or U.S. dollar.

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Federal and State Wage and Hour Laws

Employers in the U.S. have to follow federal and state labor laws. The U.S. Department of Labor (DOL) enforces minimum wage and overtime laws, regardless of the form of currency. Under the Fair Labor Standards Act (FLSA), employers must pay at least the minimum wage and any applicable overtime pay.

Federal laws require employers to pay workers in U.S. currency, or an equivalent. Workers can get payment in cash or “negotiable instrument payable at par.” Negotiable instruments can include foreign currency exchangeable at the current rate in U.S. dollars at the time of payment.

Some states have laws explicitly stating that employers must make payments in U.S. currency. Other state laws require receipt of payment free of any banking or financial institution fees. This limits payment options for employees in cryptocurrency.

There is more flexibility for independent contractors and freelancers. Many contractor jobs are exempt from wage and hour laws for employees. However, employers cannot misclassify workers as independent contractors to avoid labor laws.

Crypto Payment of Wages and Income Tax Implications

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.”

According to the Internal Revenue Service (IRS), 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 have to pay capital gains taxes on your profits. Using your digital currency for purchases or trading for another currency is a taxable event for reportable gains and losses.

Holding onto your Coinbase account is not a taxable event. This means that until you sell assets on the cryptocurrency exchange, spend it, or trade it, there are no tax consequences. This is similar to investment accounts. You are not taxed until you sell securities and realize a profit.

The IRS has identified unreported virtual assets and crypto transactions as a focal point of investigation. You can’t avoid U.S. income taxes by taking your payment in crypto payment options. There are financial penalties for failure to report income for tax purposes.

Legal Help With Payroll Cryptocurrency Transactions

Taking your paycheck in cryptocurrency will require a tolerance for risk. Many employers don’t offer paying wages in digital assets. Talk to your employer about your option to get payments in digital assets. Consult with an experienced employment law attorney who understands local wage and hour laws. For more information about this area, see our overview of employment laws.