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In what looks like will be the next to last of our discussions on the nuances of cryptocurrency, we are looking into the recognition of revenue and income as it relates to independent contractors and employees.
Generally, self-employment income includes all gross income received by an individual from any trade or business
carried on by the individual as other than an employee. As mentioned before, the fair market value of virtual currency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, is the value of self-employment income received and is subject to the self-employment tax.
See FS-2007-18, April 2007, Business or Hobby? Answer Has Implications for Deductions, for information on determining whether an activity is a business or a hobby.
As it concerns the relationship between an employer and employee, the method of compensation for services is paid is inconsequential to the determination of what constitutes wages for employment tax purposes. As a result, the fair market value of crypto/virtual currency paid as wages is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W–2, Wage and Tax Statement.
See Publication 15 (Circular E), Employer’s Tax Guide, for information on the withholding, depositing, reporting, and paying of employment taxes.
Payments of virtual currency are subject to informational reporting to the same extent as any other payment made in property (stocks, bonds, other property, etc.). For example, a person who in the course of a trade or business makes a payment of fixed and determinable income using virtual currency with a value of $600 or more to a U.S. non-exempt recipient in a tax year is required to report the payment to the IRS and to the payee. Examples of payments of fixed and determinable income include rent, salaries, wages, premiums, annuities, and compensation. These payments, as usual for this type of compensation, are reported to the IRS and payee on form 1099-MISC for miscellaneous income.
See the Instructions to Form 1099–MISC and the General Instructions for Certain Information Returns for more information.
With this being the next to last dive into the taxable transactions according to the IRS regarding cryptocurrency (virtual currency per the IRS), there will be additional topics and information discussed after the conclusion of this series.
Until next time.
- Tom
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