IRS Issues Guidance on Virtual Currency and Employment Taxes
The IRS has issued Revenue Ruling 2019-24 (10-9-19) and updated its Frequently Asked Questions (FAQs) to provide additional guidance to taxpayers who engage in transactions involving virtual currency. Three of the FAQs relate to employment taxes.
The new guidance expands on guidance released in 2014. Through Notice 2014-21, the IRS explained that general tax principles that apply to property transactions apply to transactions involving virtual currency. This means that wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
The FAQs provide additional details. FAQ8 says that when a person provides services and is paid with virtual currency, the payment should be recognized as ordinary income. FAQ9 says virtual currency received by an independent contractor for performing services constitutes self-employment income. FAQ10 confirms guidance provided in Notice 2014-21 stating that virtual currency paid by an employer as remuneration for services constitutes wages for employment tax purposes.
In a news release announcing the latest guidance, IRS Commissioner Chuck Rettig said, “the IRS is committed to helping taxpayers understand their tax obligations in this emerging area," and that “the new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment. We want to help taxpayers understand the reporting requirements as well as take steps to ensure fair enforcement of the tax laws for those who don't follow the rules.”
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Curtis E. Tatum, Esq., is Director of Federal Payroll Compliance for the APA.