When crypto counts as income

Some crypto is taxed the moment it arrives, before you sell anything. This lesson covers which receipts count as income under US rules and how the two kinds of tax fit together.

What counts

Pay for work. If you are paid in crypto for services, you have ordinary income equal to its fair market value when you receive it. Wages paid in crypto are still wages.
Staking rewards. The IRS ruled in 2023 that staking rewards are income in the year you gain "dominion and control" over them. In plain terms, that is when you are able to sell or transfer them. The ruling applies whether you stake directly or through an exchange.
Mining rewards. The IRS lists mining with staking as income to report.
Coins from a hard fork. A hard fork is a split in a blockchain that creates a new coin. If you receive the new coin, you have income equal to its value when you receive it.

In each case the amount is the value in dollars at the date and time you received the crypto.

Taxed twice, on different things

Crypto you receive as income goes through both taxes from Lesson 56, one after the other.

On receipt: the value that day is income.
On disposal: you have a capital gain or loss, measured from that same value. The amount you reported as income becomes your cost basis.

An example:

You receive a staking reward of 0.1 ETH when ETH is $3,000. You have $300 of income. Your basis in that 0.1 ETH is $300.
Eight months later you sell it for $250. You have a $50 capital loss.

You are not taxed twice on the same dollars. You are taxed on the value when it arrived, then on the change since.

The trap

The income is fixed on the day of receipt. If the price then falls, the income does not shrink.

Suppose you receive rewards worth $5,000 over a year and keep them. By the time the tax is due they are worth $1,500. You still owe income tax on $5,000.

Two habits protect you:

Record the dollar value of every reward on the day it arrives.
Set aside enough to pay the tax. Some people sell part of each reward for this purpose.

What is not income

A gift. If you receive crypto as a genuine gift, you have no income until you dispose of it. Your cost basis is generally the giver's basis. Ask the giver for their purchase record. Without documentation, the IRS treats your basis as zero.
Buying crypto with your own money.
Moving crypto between your own wallets.

Where it goes on the return

The IRS says income from staking, mining and forks goes on Schedule 1 of the tax return. Wages go with your other wages. If you receive crypto in the course of a business or as an independent contractor, it goes on Schedule C, and self-employment tax can apply.

Putting a value on it

You need the dollar value at the time of receipt. For crypto received through an exchange, use the exchange's price. For crypto received straight to your own wallet, the IRS says it will accept a value taken from a cryptocurrency or blockchain explorer for the date and time of the transaction.

Rewards that do not arrive as coins

Lesson 48 described liquid staking tokens whose price rises in place of paying out new tokens. Lesson 43 described lending deposits that grow in the same way. The IRS has not said exactly when income arises in those cases. Lesson 60 looks at what to do when the rules run out.