June 2026- Q&A, Virtual Currency

Q&A with virtual currency

Q1: What is cryptocurrency?
A1: Cryptocurrency is a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain. A transaction involving cryptocurrency that is recorded on a distributed ledger is referred to as an “on-chain” transaction; a transaction that is not recorded on the distributed ledger is referred to as an “off-chain” transaction.

Q2: Does virtual currency paid by an employer as remuneration for services constitute wages for employment tax purposes?
A2: Yes. Generally, the medium in which remuneration for services is paid is immaterial to the determination of whether the remuneration constitutes wages for employment tax purposes. Consequently, the fair market value of virtual currency paid as wages, measured in U.S. dollars at the date of receipt, 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 PDF, for information on the withholding, depositing, reporting, and paying of employment taxes.

Q3: How do I calculate my income if I provide a service and receive payment in virtual currency?
A3: The amount of income you must recognize is the fair market value of the virtual currency, in U.S. dollars, when received. In an on-chain transaction you receive the virtual currency on the date and at the time the transaction is recorded on the distributed ledger.

This newsletter contains general information for taxpayers and should not be relied upon as the only source of authority.  Taxpayers should seek professional tax advice for their specific tax situation and for more information.