New Information From The DOL And The IRS Regarding Paying Employees With Cryptocurrency
Jul 26, 2022
What The U.S. Labor Department Said About Paying Wages With Cryptocurrency
Earlier this year, the U.S. Department of Labor’s (DOL) Office of Public Affairs officially responded to whether employers could pay employee wages in cryptocurrencies.
The DOL explained that regulations under the Fair Labor Standards Act (FLSA) provide that wage payments may be made in cash or negotiable instruments (payable at par). In cryptocurrency, employers cannot make base wages (salaries or minimum wages) or overtime pay. Paying bonuses and other incentive payments in cryptocurrency is allowed, however.
The DOL had no further comment and referred back to its initial response when specifically asked a more “yes or no” question regarding if employers could pay employee wages in cryptocurrencies.
What The IRS Said About Paying Wages With Crypto?
The IRS provides a list of frequently asked questions (FAQs) on cryptocurrency. Question #11 says that virtual currency paid to an employee in exchange for services constitutes wages for federal employment tax purposes. The FAQ adds that the fair market value of virtual currency paid as wages, measured in U.S. dollars at the time of receipt, is subject to federal employment taxes and must be reported on Form W-2 (Wage and Tax Statement).
What The IRS Said About Paying Federal Taxes With Cryptocurrency
According to the IRS, the Federal government does not currently accept virtual currencies to pay any Federal taxes. This includes Federal Income Tax, Federal Unemployment Tax Act (FUTA) tax, Social Security Tax, Medicare Tax, and Additional Medicare Tax (i.e., employment taxes).
Federal Withholding and Tax Issues
The fair market value of virtual currency paid as wages (measured in U.S. dollars on the date of receipt) is subject to federal income tax withholding and Social Security and Medicare (FICA) and Federal Unemployment Tax Act (FUTA) taxes and must be reported on Form W-2, Wage and Tax Statement.
The IRS explained that virtual currency is treated as property for Federal income tax purposes and provides examples of how longstanding tax principles applicable to transactions involving property apply to virtual currency. The IRS does consider virtual currency paid by an employer as remuneration for services to be wages for employment tax purposes.
State Laws Vary
Specific rules governing paying employees with crypto vary widely from state to state. Before considering this option, employers should contact their State DOL for clarification.
The DOL and IRS comments were sourced from Thomson Reuters article.