Getting Paid in Crypto: How Income, Basis and Self-Employment Tax Work

Getting paid in crypto feels like getting paid in an investment. For tax purposes, it is getting paid. The work produces income the day you receive the crypto, and the crypto then becomes an investment with its own future gain or loss. Two events, two sets of rules.

This guide covers what happens when you receive crypto for services or goods, as an employee, a freelancer or a business. If you pay others in crypto, see the existing guide on paying employees in crypto.

The income rule

Notice 2014-21, Q&A-3, says a taxpayer who receives virtual currency as payment for goods or services must include its fair market value, measured in U.S. dollars as of the date received, in gross income. The IRS FAQs (Q9 and Q12) repeat that receiving crypto for services is ordinary income measured at fair market value when received, which is generally when the transaction is recorded on the ledger.

The medium does not change the character. A $5,000 invoice paid in crypto worth $5,000 is $5,000 of income, the same as a check. If the crypto is worth more or less than the invoice when you receive it, the income is the value of the crypto received.

Your basis in the crypto you receive

Notice 2014-21, Q&A-4, says the basis of crypto received as payment is its fair market value in dollars on the date of receipt. That is the same number you reported as income. Your holding period begins the day after receipt, as the IRS FAQs describe for property received.

This is where people get double taxed. If you report $5,000 of income and later sell the crypto for $5,000, you have no gain. Your basis is $5,000. If your records show a zero basis because you never bought the crypto, you will report another $5,000 of gain and pay tax twice on the same dollars. Income creates basis. Write it down when you receive the payment.

Employees

Notice 2014-21, Q&A-11, says the medium in which an employer pays remuneration is immaterial to whether it is wages. The fair market value of crypto paid as wages is subject to federal income tax withholding, FICA and FUTA taxes, and must be reported on Form W-2. You report it as wages like any other paycheck, and your basis in the crypto is the value included in your wages.

Independent contractors and freelancers

Notice 2014-21, Q&A-10, says the fair market value of crypto received for services performed as an independent contractor, measured in dollars as of the date of receipt, is self-employment income subject to self-employment tax. The IRS digital assets page says to report it on Schedule C.

Schedule C reporting also means business expenses are deductible against that income, and that the net is subject to self-employment tax. Freelancers paid in crypto often also need estimated tax payments, because nothing is withheld. See extensions and estimated payments.

Information returns from your clients

Notice 2014-21, Q&A-13, said that a business paying an independent contractor $600 or more in a year in crypto must report it, using the fair market value on the date of payment, and that the recipient may have income even without receiving a form. The threshold has since changed. Rev. Proc. 2025-32 explains that the One Big Beautiful Bill Act amended section 6041(a) so that, for payments made after December 31, 2025, the base reporting threshold is $2,000, adjusted for inflation in later years.

The threshold controls when a client must file a form. It does not control whether you have income. A $1,500 crypto payment with no form is still $1,500 of income.

Clients making reportable payments may also need your taxpayer identification number. Q&A-14 says payments in virtual currency are subject to backup withholding to the same extent as other payments in property.

Businesses selling goods for crypto

A business that accepts crypto for goods follows the same principle. The sale price is the fair market value of the crypto received, and that value is the business's basis in the crypto. The IRS digital assets page directs property sold to customers in a trade or business to Schedule C for sole proprietors. When the business later sells or spends the crypto, it computes gain or loss against that basis.

If a payment processor converts the crypto to dollars before it reaches you, you received dollars, not crypto, and the processor may report the payment on its own information return. Notice 2014-21, Q&A-15, discussed how third party settlement organizations aggregate crypto-settled payments with other payments for Form 1099-K purposes.

Tokens without a reliable market price

Sometimes payment arrives in a token with thin trading or no listed price. Notice 2014-21, Q&A-5, says fair market value is determined by converting at the exchange rate, in a reasonable manner consistently applied, when the currency is listed on an exchange. The IRS FAQs (Q28) say that when the crypto received has no published value, its fair market value is generally the fair market value of the property or services exchanged for it. For an invoice-based payment, that often means the invoice amount. Document the method you used.

Mining and other ways crypto arrives

Payment for work is not the only way crypto becomes income. Notice 2014-21, Q&A-8, says successfully mined virtual currency is income at fair market value on the date of receipt, and Q&A-9 says mining that rises to a trade or business produces self-employment income. Rewards for staking follow Rev. Rul. 2023-14. Each of these creates basis equal to the income reported. See the existing guide on mining taxes.

Accrual-method businesses

The rules above assume the cash method, which most individuals use. Rev. Rul. 2019-24 notes that an accrual-method taxpayer generally includes an amount in income no later than the year in which all events have occurred that fix the right to receive it. A business on the accrual method that invoices in crypto should apply its method consistently and track the difference between the amount accrued and the value of the crypto actually received.

When you later sell or spend the crypto

The second event is a disposition. Your gain or loss is the amount realized minus the basis you established at receipt. Held one year or less, it is short-term; held more than one year, long-term. See crypto holding periods.

For freelancers who hold crypto received for work as an investment, the investment gain or loss is generally capital, while the original payment was ordinary income. Keep them separate on the return: the payment on Schedule C, the later sale on Form 8949.

A worked example

Jordan, a freelance developer, is paid 0.1 BTC on March 3, 2026, when 0.1 BTC is worth $9,000. In November 2026 Jordan sells the 0.1 BTC for $7,500.

• March: $9,000 of Schedule C income, subject to income tax and self-employment tax. Basis in the 0.1 BTC: $9,000.
• November: a $1,500 short-term capital loss ($7,500 minus $9,000) on Form 8949.

The capital loss does not reduce the self-employment income. They are different items on different schedules. Getting paid in crypto shifts price risk to you after the income is fixed.

Payments through platforms

Some freelancers are paid through platforms that convert crypto or hold balances on the worker's behalf. Read what the platform actually does. If you receive dollars, you have dollar income. If you receive crypto into an account you control, you have crypto income and a crypto lot. The platform's statements are the evidence either way.

Records to keep

• The invoice or agreement and the payment transaction hash.
• The date and time of receipt and the value used, from a consistent source.
• The wallet that received the payment, so the lot is in the right place for the wallet-by-wallet rules.

Getting the income number and the basis number from the same record is the whole trick. When they come from the same invoice and the same price source, they match automatically, and the later sale reports cleanly. See crypto record-keeping for the rest.

Frequently asked questions