Cryptocurrency wages are on the rise, but there are some drawbacks as well

Cryptocurrency wages are on the rise, but there are some drawbacks as well

When news of increasing use of bitcoin and ethereum sparked a rally in November, politicians and athletes jumped on the bandwagon by saying that they’d pay part of their salaries in cryptocurrency. Eric Adams, the mayor of New York City, promised after his election that he would accept his first three paychecks in bitcoin, and Odell Beckham Jr., the wide receiver for the Los Angeles Rams, who chose to take his whole NFL salary in bitcoin after signing a new contract with the team. However, the cryptocurrency sell-off that has pushed digital asset values to new lows demonstrates that there are still issues with crypto payrolls, and those striving for wages and other benefits in digital currencies should be cautious. “Receiving a portion of your pay is a method of openly expressing your enthusiasm for the industry and your conviction that it will thrive.” “Of course, because of the unpredictability, this entails risk — which is why most people only invest what they can afford to give up,” says the author. Employees and employers both benefit from receiving payments in cryptocurrency since it is a low-cost and efficient method of payment, it eliminates the need for a financial institution to act as an intermediary, and it is a risky investment. Downward fluctuations, on the other hand, may result in rapid and unanticipated value losses that might immediately reduce employee earnings, just as digital currencies have the power to trend forward. “It’s worth noting that in most of the cases we’ve heard about, rather than their recruiter transferring crypto to them, the individual is actually converting their salary, or a portion of it, into crypto after getting paid,” Cathy Barrera, founder of Prysm Group and program director of the Wharton Economics of Blockchain and Digital Assets program, told Yahoo Finance. However, we could perhaps regard these behaviors to be equivalent to investing a percentage of one’s salary, even if their employer is turning their profits into crypto. According to Barrera, “the key distinction is that crypto is a riskier asset than regular investing.”

Are cryptocurrency income taxable?

Cryptocurrency payrolls can potentially be problematic in terms of taxes. As regulatory clarity looms, the Internal Revenue Service (IRS) guidance is scarce and subject to change. Most digital assets are currently taxed as property rather than money for federal income tax purposes in the United States, and depending on the value and holding duration, an individual may face ordinary income taxes or capital gains rates on their allocations. According to Josh Tompkins, managing director of KPMG’s Washington National Tax office, “whether getting paid in cryptocurrencies is favorable or unfavourable [from a tax standpoint] is going to depend on market conditions and how the contract is constructed.” “Generally, the taxable income consequences will match the contract’s economics, as measured in US dollars,” he stated. “For example, if a contract specifies that a person would be paid a certain amount of bitcoin regardless of market pricing, that deal will be far less appealing in US dollar terms if bitcoin values decrease.” According to Tompkins, if one’s taxable income is calculated using the value of a digital currency on the day of receipt, one’s taxable income may be lower than it would be otherwise. If the revenue on the receipt appreciates against the US dollar, the income could increase. On the other hand, the sum paid under certain agreements may be indicated in US dollars but payable in crypto. “In those cases, the fair market price being shifted to the service provider [one receiving payment] is locked in US dollar terms, and the taxable income affecting to the deal would not change, although the amount of cryptos ultimately forwarded would be determined solely by current market prices,” Tompkins said. “It should be borne in mind that trading the cryptocurrency received into fiat currency may incur fees, which could be a negative.” On the employer side, crypto-specific payroll systems are still in their early phases, posing hurdles for payroll departments trying to manage them. While private firms attempt to fill in the shortages and advance innovation, regulatory uncertainty around cryptocurrencies may continue to be a burden for employers attempting to comprehend and follow the rules. The Biden administration is planning to unveil a government-wide tactic to monitor and control cryptocurrencies as early as February, but the framework is still being developed, and it will take time for it to be widely adopted — and understood — by businesses considering paying their employees in cryptocurrency.

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