Cryptocurrency Is Here to Stay, So Don’t Sleep on It
“Oh, my goodness … another thing for us to deal with!” It’s probably what the average payroll practitioner is probably saying to themselves about cryptocurrency. And, why not? We’ve experienced a Form W-4 revamp and are still working our way through the challenges of earned wage access (EWA). Now, the payroll industry is being introducing to cryptocurrency. As with anything new, concepts like cryptocurrency create hesitancy and resistance to implement. Think for a moment to the early ‘90s when direct deposit was first being implemented into the payroll world. Fast forward to 2022 where direct deposit is now a standard process, with several companies even requiring it of their staff.
Surprisingly, cryptocurrency dates back almost 40 years to 1983. Then, American cryptographer David Chaum introduced a type of electronic money called ecash. After a decade of testing, Chaum implemented a commercialized network called Digicash in 1995, which was utilized by U.S. Bank. In 2009, someone using the pseudonym Satoshi Nakamoto introduced the world to Bitcoin in a white paper. Within a year, bitcoin had its first price increase from a fraction of a penny to nine cents. As of August 2022, bitcoin sits at around $20,000 per coin. This means that if you bought $5 of bitcoin in 2010, it would currently be valued at about $1.1 million. While bitcoin remains the highest grossing coin, other cryptocurrency such as Ethereum, Binance, and Shiba INU have experienced massive gains.
Cryptocurrency continues to gain popularity throughout the world, creating everyday “crypto millionaires” with minimal investments. NFL players such as Odell Beckham Jr., Trevor Lawrence, and Saquon Barkley are among the athletes who’ve accepted salary payments in bitcoin. There have been stories around the country of other celebrities formulating contracts where funds are paid in cryptocurrency.
In 2014, the IRS implemented guidelines and processes of how virtual currency should be treated for federal tax purposes. IRS Notice 2014-21 explains that cryptocurrency is treated as property and the general tax principles surrounding property transactions apply when using virtual currency. A person who receives, buys, and/or sells cryptocurrency must report their transactions on their personal income tax return, the same as anyone who owns shares of stocks and dividends.
With businesses beginning to accept cryptocurrency as legal tender for transactions, consumers have begun requesting their employers convert a portion of their wages into cryptocurrency. Cliffton O’Neal, a crypto investor and teacher who can be seen on social media under the handle “Crypto Cliff,” calls cryptocurrency the “greatest transfer of wealth the world has ever seen.” O’Neal spends his day educating his students and social media users on the history of cryptocurrency, how blockchain technology is used to handle cryptocurrency transactions, and how cryptocurrency will ultimately become stronger than the U.S. dollar.
Businesses and vendors are taking notice as cryptocurrency slowly becomes the norm in many households. They’ve begun integrating with companies to assist employers by offering solutions to convert payroll wages into the crypto wallets of their employees.
BitWage, a San Francisco-based company, was launched in 2013 as a platform to assist freelancers and employees receive their wages in bitcoin. Through the years, BitWage has partnered with employers across the world to provide their wages-to-crypto conversion services. Other vendors have followed BitWage’s lead to partner with employers and payroll service bureaus across the country to assist in the processing of payroll through cryptocurrency.
While there are plenty of payroll professionals across the United States who frown on cryptocurrency, many wonder if it will become the next “direct deposit” innovation. The APA keeps us updated on the progress of cryptocurrency and payroll through its Compliance Hot Topics “Cryptocurrency” webpage, Payroll Currently articles, webinars, and regulation announcements from the IRS and various states.
Gerard Hall, CPP, is Senior Payroll Operations Manager at CBIZ. He is a volunteer on the APA’s Board of Contributing Writers, Government Relations Task Force (GRTF) Child Support, Federal Issues, and Garnishments Subcommittees, Hotline Referral Service, Shared Services Task Force, Social Networking Committee, and Strategic Payroll Leadership Task Force (SPLTF) Best Practices Subcommittee. He is also a member of the Southwest Virginia Chapter of the APA.