Part 4: Getting Paid in Crypto — How Income Tax Really Works in 2025

💼 Getting Paid in Crypto — How Income Tax Really Works in 2025

Getting paid in crypto is more common than ever — freelancers, creators, remote workers, and even small businesses now receive digital assets as compensation.
But the IRS treats crypto payments very differently than capital gains.
In 2025, crypto compensation is always taxable income, and the rules can surprise many taxpayers.

1️⃣ Crypto Income Basics — How the IRS Defines It

The IRS treats crypto received as payment the same as receiving cash.
The value of the crypto at the moment you receive it is considered ordinary income.

Crypto income includes:

• Freelance payments
• Employee wages paid in crypto
• Staking rewards
• Mining rewards
• Airdrops
• Referral bonuses and platform rewards

2️⃣ Receiving Crypto for Work (Freelancers, Contractors)

Freelancers and self-employed workers must report crypto payments as self-employment income.
This amount is subject to:

• Federal income tax
• Self-employment tax (Social Security + Medicare)

3️⃣ Employee Wages Paid in Crypto

When employees receive wages in crypto, the employer must:

• Report wages on Form W-2
• Apply federal & state withholding
• Pay payroll taxes

Employees do NOT pay self-employment tax.

4️⃣ Staking, Mining & Crypto Rewards as Income

Rewards are taxable as ordinary income at the moment the reward hits your wallet or becomes available to you.

• Staking: income when credited, not when withdrawn
• Mining: income based on market value when earned
• Airdrops: fully taxable at receipt
• Play-to-earn: considered self-employment income

5️⃣ Income Basis → Capital Gain When You Sell

Crypto received as income later becomes a capital asset.
When you eventually sell or swap it, you calculate gain or loss using:

Example:

• You received 0.2 ETH as income worth $500
• Later sold it for $780

Capital gain = $280

❓ Frequently Asked Questions

🔗 Reference Links

📚 Crypto Taxation Series (2025)

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