Beyond volatility, people will also have to convert their cryptocurrencies into cash to use their earnings since, of course, most establishments don’t accept bitcoin. That means paying unpredictable transactions fees and, since the IRS considers cryptocurrencies a property, paying taxes at their capital gains rate each time they use their bitcoins or ripples.
They’ll also, of course, still have to pay income tax — after some math. “A taxpayer who receives cryptocurrency as payment for goods or services must, in computing gross income, include the fair market value of the cryptocurrency, measured in U.S. dollars, as of the date that the cryptocurrency was received,” said Selva Ozelli, a CPA and lawyer who writes about cryptocurrencies.
Employers, for their part, should also brace for headaches.
“Payments using cryptocurrency made to independent contractors are taxable,” Ozelli said.
These employers must issue a 1099 to their contractors. But “an employer can’t enter 1,000 Bitcoin on IRS Forms 1099,” she said.
Instead, they must value the payment in dollars (at the time of payment). Some companies convert fiat currency into digital coins for employers – although they charge fees to do this.
Sharing economy workers, also known as “gig” workers, are often in financially uncertain situations to begin with, and paychecks in bitcoin will make life more risky for them, said Niam Yaraghi, assistant professor at the University of Connecticut’s business school and co-author of a recent report on the sharing economy.
“If I say this year I’m spending one-tenth of a bitcoin on office supplies, how much will I be spending next year in bitcoin?” said Yaraghi. “I don’t think there’s anyone in the world who can answer that question. It’s very, very dangerous.”