Crypto and U.S. income taxes: When and how is crypto taxed as income?
From staking to sweepstakes, some of your crypto earnings, winnings, and more might be subject to U.S. federal income taxes.
In 2021, crypto reached the mainstream, which means there’s a good chance you’ve made one or more crypto moves recently — like spending, staking, lending, and more. But for the millions of Americans who entered the cryptoeconomy for the very first time last year, it’s crucial that you start thinking about one of the less-fun aspects of your journey: taxes.
First things first...
Coinbase doesn’t provide tax advice. This article represents our stance on IRS guidance received to date, which may continue to evolve and change. None of this should be considered as advice or an individualized recommendation, but it’s important to us that our readers have relevant information available to them in the most accessible way possible. Please consult a tax professional regarding your own tax circumstances.
There's a long list of crypto activities you’ll need to report to the IRS. In the U.S. the most common reason people need to report crypto on their taxes is that they’ve sold some assets at a gain or loss (similar to buying and selling stocks) — so if you buy one bitcoin for $10,000 and sell it for $50,000, you face $40,000 of taxable capital gains.
However, the crypto universe is expanding fast — there’s just so much more to do than simply buying and selling, and crypto reporting can be tricky, as gains you receive from certain activities count as ordinary income.
It’s important to note: you’re responsible for reporting all crypto you receive or fiat currency you made as income on your tax forms, even if you earn just $1. If you earn $600 or more in a year paid by an exchange, including Coinbase, the exchange is required to report these payments to the IRS as “other income” via IRS Form 1099-MISC (you’ll also receive a copy for your tax return). So what counts as “income”? Here’s a roundup of all the ways you can earn on Coinbase:
Staking rewards and interest earned on Coinbase: Users who hold Dai, Tezos, USDC, Algorand, or Cosmos may be eligible to earn rewards at up to 5% APR. These rewards count as income.
Payments received in crypto: Crypto is becoming an increasingly popular payment method, and platforms like Coinbase Commerce have processed hundreds of millions of dollars worth of transactions. Similar to payments received by traditional payment methods, any crypto payments for taxable goods or services need to be reported as income
Sweepstakes winnings: Coinbase (and other exchanges) regularly runs sweepstakes for users. If you won a prize, congrats! But as you may already be aware, you’ll need to report your winnings as income.
Coinbase incentives: Users may be able to receive rewards for signing up for Coinbase ($5 per user) or referring a friend — this also counts as income.
Coinbase Earn payouts: A popular way to generate crypto rewards on Coinbase is through Coinbase Earn. In exchange for learning the basics about certain cryptocurrencies, you can get some to try for yourself.
User research payouts: From time to time, Coinbase reaches out to product users (and non-users!), asking if they’re willing to participate in research studies for compensation. These earnings should be reported as ordinary income.
Assets received from a hard fork: In the past, there have been a few high-profile hard forks, like when Bitcoin Cash was created in 2017. In this case, anyone who owned Bitcoin on the network at the time was able to receive an equal amount of Bitcoin Cash after a new, separate blockchain was created from the original. In a 2021 memorandum, the IRS clarifies that any earnings received from a hard fork are indeed treated as income.
When you do any of the above directly on the primary Coinbase platform (staking, stablecoin rewards, incentive rewards, sweepstakes, or Earn rewards), you can easily view your total miscellaneous income by logging into Coinbase Taxes.
But for any moves you make outside of the primary Coinbase platform like using decentralized financial (DeFi) protocols via Coinbase Wallet — the process may be trickier. We recommend reviewing your transactions with a qualified accountant. You might also want to use a service like CoinTracker, which can be used to track a wide range of on-chain transactions. And keep in mind that — depending on how much income you earned — your personal tax bracket may increase as you add crypto income to your regular income.
For a more complete list of crypto activities that might be considered income, check out our guide “Understanding crypto taxes.”