Can you get paid in crypto?

You can get paid in crypto, including bitcoin, if an employer or client agrees to it. In the United States, a crypto salary is taxed the same way as a dollar salary, and the coins you receive are valued in dollars on the day you get them. Employment rules make direct crypto wages harder than they look, so many arrangements convert dollar pay into crypto.

How is crypto salary taxed?

The IRS set this out in Notice 2014-21. Paying wages in virtual currency does not change their character. The employer withholds income tax and pays Social Security, Medicare and federal unemployment taxes on the dollar value, and reports it on Form W-2.

Independent contractors are treated similarly. The IRS says crypto received for services is self-employment income, measured at its fair market value in US dollars when received, and is subject to self-employment tax. Businesses that pay contractors in crypto report those payments the same way as payments in other property.

The dollar value you are taxed on becomes your cost basis in the coins. If you later sell or swap them, any change in value is a separate capital gain or loss, as covered in how crypto is taxed in the US.

Is crypto pay legal?

For freelancers and contractors, payment terms are mostly a matter of agreement. For employees it is more complicated.

Under the federal Fair Labor Standards Act, a Labor Department rule says minimum wages and overtime must be paid in cash or a negotiable instrument payable at par. A 2022 analysis by the law firm Morrison Foerster said neither the department nor the courts had clarified whether crypto fits that test.

States add their own limits. The same analysis said California requires instruments that can be cashed on demand without discount, Illinois requires lawful US money, and Washington and other states bar passing costs such as conversion fees on to workers. It also warned that a fall in a coin's value could push pay below the minimum wage.

How does crypto payroll work?

A common setup is to pay wages in dollars and then convert some or all of them into crypto at the employee's choice. When New York City Mayor Eric Adams took his first paycheck in bitcoin and ether in January 2022, the city said it could not pay employees in crypto because of Labor Department rules. His pay was converted through the exchange Coinbase.

The Morrison Foerster analysis pointed to that model for employers: pay wages in dollars, then convert only if the employee opts in, at no cost to the employee. Conversion still involves the crypto fees of the platform used, and the coins then move with the market.

Rules differ by country and change often. Check the tax authority or a qualified professional for your own situation.