Is it legal for a company to get paid in cryptocurrency?
Over the course of the last ten years, cryptocurrency has become a prominent digital asset, capturing the attention of many. Its popularity has grown as a viable method of payment for goods and services, and an increasing number of individuals are exploring its use in business transactions or as payment for work. However, due to its recent emergence, many people are uncertain about how cryptocurrency works, particularly in the context of receiving payments in this form.
In previous articles, we discussed the general idea of blockchain on the legal side. As we continue our exploration of this topic, it is important to provide guidance on how companies in the USA should react and respond if a customer wishes to pay for goods or services with cryptocurrency. Since many countries still lack clear regulations for cryptocurrency, I will focus on addressing this issue for companies operating in such regions. To this end, I propose creating a FAQ to help these businesses navigate this complex landscape.
Q1: Is it legal to be paid in cryptocurrency in the USA?
A1: While it is generally legal to receive payment in cryptocurrency in the USA, it is essential to understand the legal framework that applies to this digital asset in your specific area, as laws and regulations regarding cryptocurrency are still evolving. According to the US Internal Revenue Service (IRS), cryptocurrency is considered property for tax purposes, which means that transactions involving it are subject to taxation. If you receive payment in cryptocurrency, you must report the value of the cryptocurrency at the time of the transaction as income on your tax return. Furthermore, if you hold the cryptocurrency for an extended period, and its value increases, you may be liable for capital gains taxes when you sell it.
Q2: How can I receive payment in cryptocurrency?
- Choose a cryptocurrency wallet: With a plethora of cryptocurrency wallets available, it is crucial to research and assess the various types, including software wallets, hardware wallets, and online wallets, to determine which one best fits your requirements.
- Set up your wallet: Follow the wallet provider’s instructions to set up your wallet, which may entail creating a password and supplying personal information.
- Obtain your wallet address: Your wallet will have a unique address consisting of a combination of letters and numbers. This address is what you will need to provide to the person or company that will be paying you.
- Share your wallet address: After obtaining your wallet address, communicate it to the entity or individual making the payment. They will need to transfer the cryptocurrency to this address.
- Verify the transaction: Once you receive the cryptocurrency, you can confirm the transaction by checking your wallet balance. The cryptocurrency will be stored in your wallet and can be utilized for purchasing goods and services, exchanging for other cryptocurrencies, or selling for fiat currency.
Q3: Where can I convert cryptocurrency to cash in the USA?
- Peer-to-peer marketplaces: Several peer-to-peer marketplaces, such as LocalBitcoins, offer the opportunity to conduct cryptocurrency transactions directly with other individuals. You can find someone willing to buy your cryptocurrency for cash and arrange a meeting to complete the exchange.
- Bitcoin ATMs: Bitcoin ATMs are increasingly popular in the USA and provide a way to purchase and sell cryptocurrency using cash. You can find a Bitcoin ATM near you through websites like CoinATMRadar.
- Over-the-counter (OTC) trades: OTC trades involve buying or selling cryptocurrency directly with another party, often through a broker. These trades may be more costly than other options, but they can be beneficial for significant transactions.
Q4: What taxes do I need to pay if I’m paid in cryptocurrency in the USA?
A4: Receiving payment in cryptocurrency in the USA can result in various tax liabilities, depending on the type of transaction. According to the Internal Revenue Service (IRS), cryptocurrency is considered property for tax purposes, making it subject to income tax. If you receive payment in cryptocurrency, you must report its value at the time of the transaction as income on your tax return.
If you receive payment in cryptocurrency as an independent contractor or freelancer, you may also be responsible for self-employment tax. This tax is equivalent to the employer and employee portions of Social Security and Medicare taxes.
If you hold cryptocurrency for an extended period, and its value increases, you may be liable to pay capital gains taxes when you eventually sell it. The tax rate will depend on your income level and how long you held the cryptocurrency.
If you sell products or services for cryptocurrency, you may also be subject to sales tax. This tax will be based on the regulations of the state in which your business operates. Maintaining precise records of your cryptocurrency transactions, including the date, value, and purpose of each transaction, is crucial.
Q5: Can I use cryptocurrency to pay bills in the USA?
A5: Yes, it is possible to use cryptocurrency to pay bills in the USA, but not all billers accept it as a payment method. Therefore, it is essential to check with the biller beforehand to avoid any complications when attempting to make a payment using cryptocurrency.
Q6: What is the best cryptocurrency to be paid in the USA?
A6: Choosing the most appropriate cryptocurrency to receive payment in the USA may depend on your personal preference and that of the person or entity making the payment. Bitcoin, Ethereum, and Litecoin are some of the popular cryptocurrencies that are widely used.
Q7: Can I be paid in cryptocurrency as a freelancer in the USA?
A7: Yes, it is possible for freelancers in the USA to receive payment in cryptocurrency, it is recommended to consult with a tax professional to ensure compliance with tax regulations.
Q8: Is it safe to be paid in cryptocurrency in the USA?
A8: While cryptocurrency transactions are typically secure due to their use of blockchain technology, there is always a risk of theft or fraud. It’s essential to take measures to safeguard your cryptocurrency wallet and ensure that you’re dealing with trustworthy individuals or companies. Cryptocurrencies are also known for their high volatility, which means that if you accept them as payment, you may be subject to sudden value changes that could affect your earnings.
Furthermore, cryptocurrency transactions are irreversible and difficult to trace, making them vulnerable to fraud and theft. To protect yourself, it’s crucial to have adequate security measures in place. Regulatory uncertainty is also prevalent in many jurisdictions, as cryptocurrency is a relatively new technology. The legal status of cryptocurrency and its use as payment may change in the future, affecting your ability to accept it.
Additionally, while cryptocurrency as a payment form is growing, it’s not yet widely adopted, which means that there are limited options for converting it into fiat currency. This could impact your ability to use the funds you receive. Finally, accepting cryptocurrency as payment requires technical knowledge and expertise, including managing a cryptocurrency wallet, accepting payments, and understanding best practices for cryptocurrency transactions.
Q9: Can I be paid in cryptocurrency for my job in the USA?
A9: Yes, it is possible to receive payment in cryptocurrency for a job in the USA, but it is also important to seek guidance from your employer and a tax expert to ensure compliance with relevant laws. In New York, for example, payment in cryptocurrency is subject to state and federal regulations, including labor laws and tax laws. Here are some of the laws that apply to cryptocurrency payments in New York:
- Labor Law: Employers in New York State must pay employees the minimum wage in US dollars. If an employer pays an employee in cryptocurrency, they must ensure that the cryptocurrency payment is equivalent to the minimum wage in US dollars.
- Sales Tax: Sales of tangible personal property, goods, and services, for cryptocurrency are subject to sales tax in New York State. If you sell goods or services in exchange for cryptocurrency, you may be required to collect and remit sales tax to the state.
- Income Tax: Cryptocurrency payments are subject to the same state and federal income tax laws as traditional payment methods. Therefore, if you receive payment in cryptocurrency for services rendered, you must report the fair market value of the cryptocurrency at the time of the transaction as income on your tax return.
- Regulation of Virtual Currencies: New York has established a regulatory framework for virtual currencies, including cryptocurrency, known as the BitLicense. This framework requires companies involved in certain virtual currency business activities, such as exchanges and custodians, to obtain a license from the New York State Department of Financial Services (NYDFS).
Q10: How does being paid in cryptocurrency affect my taxes in the USA?
A10: As previously mentioned, accepting payment in cryptocurrency in the USA can have tax consequences. Cryptocurrency is considered property for tax purposes, which means that any gains from selling or exchanging it, as well as any cryptocurrency received as income or in exchange for goods or services, may be subject to taxation.
Q11: Is it legal to get paid in cryptocurrency for a company?
A11: Yes, paying for goods with cryptocurrency is possible, but it’s important to check if the company you’re transacting with accepts it as a payment method. To make a payment with cryptocurrency, you’ll need the following:
- Cryptocurrency: You need to have enough cryptocurrency to cover the cost of the goods you want to purchase. If you already have cryptocurrency, make sure you know how to manage it safely.
- Cryptocurrency wallet: You’ll need a cryptocurrency wallet to store your funds. There are different types of wallets available, such as mobile, desktop, and hardware wallets. Before selecting a wallet, make sure it supports the cryptocurrency you want to use and that it’s secure.
- Payment address: To complete the transaction, the company should provide you with an address to send your cryptocurrency. Verify that the address is accurate and that you have entered the correct amount of cryptocurrency.
- Transaction confirmation: After you have sent the cryptocurrency to the company’s address, you’ll need a transaction confirmation to ensure that the funds have been sent successfully. The confirmation is typically done through the blockchain network, and the company will notify you once the transaction is confirmed.
It’s worth noting that paying with cryptocurrency for goods and services may have tax implications in the US. This is because such transactions are considered selling cryptocurrency, and any increase in value from the time of purchase could be subject to capital gains tax. Capital gains are profits realized from the sale of assets like stocks, real estate, and other investments. When the sale price exceeds the purchase price, it results in a capital gain, while if the sale price is less than the purchase price, it results in a capital loss.
In the USA, cryptocurrencies are subject to regulation by various government bodies. These include:
- The Federal Bureau of Investigation (FBI) which is responsible for preventing cryptocurrency-related criminal activities such as fraud, money laundering, and terrorism.
- The Financial Crimes Enforcement Network (FinCEN) which oversees the use of cryptocurrencies in preventing money laundering and terrorist financing.
- The Securities and Exchange Commission (SEC) which regulates the securities markets and oversees the sale of securities, including cryptocurrency.