Cryptocurrency taxes are a minefield, both to new and old investors. Understanding your Bitcoin tax rate and cryptocurrency tax rate is key to ensuring you don’t pay too much, or too little to the IRS and face harsh penalties.
Wondering what your Bitcoin tax rate is? What about other cryptocurrency tax rates, like Ether, Solana, Ripple or ADA?
Unfortunately, it’s not a straightforward answer in the US. This is because cryptocurrency doesn’t have its own specific tax treatment. Instead, cryptocurrency is taxed under Income Tax or Capital Gains Tax - or sometimes both!
The type of tax applied depends on the type of crypto transaction and whether the IRS views it to be a form of income or a capital gain. It’s enough to give any investor a headache!
Fear not - we’ve broken down the different cryptocurrency tax rates in the US and which transactions they apply to.
How the US taxes crypto
In the US, the cryptocurrency tax rate is based on a 2014 IRS ruling that all crypto assets should be treated as bonds or stocks - so as a capital asset - and not a fiat currency.
This means crypto is subject to Capital Gains Tax or Income Tax, depending on the type of transaction. The exact amount you’ll pay depends on how long you’ve held your asset, your Federal Capital Gains Tax rate and your Federal Income Tax bracket. Let’s break it down.
US Tax Deadlines 2021 - 2022
The US tax year runs from the 1st of January to the 31st of December 2022. There are several important dates you need to know about:
1st January 2022: Tax year starts.
April 15th 2022: Deadline for 2021 tax return for both income and capital gains.
15th June 2022: Deadline for 2021 tax returns for US citizens living abroad.
October 15th 2022: Deadline for 2021 tax returns for taxpayers who received an extension.
31st December 2022: Tax year ends.
How and when is crypto taxed as income in the US?
There are some crypto transactions the IRS sees as a type of income. This includes:
- Being paid in crypto - just like a salary.
- Mining - seen as additional income.
- Rewards from staking and liquidity pools - seen as dividends.
- DeFi interest - seen as similar to bank account interest.
- Forks - seen as a type of bonus when a new coin is received.
- Airdrops - seen as a type of bonus.
- Referral bonus - seen as a kind of commission.
US tax rate on crypto income
When ‘earning’ coins, your crypto tax rate will be the same as your Federal Income Tax bracket. This is based on your overall earnings and your set-up at home. That means, whether you’re filing as an individual, the head of the household, or married and filing jointly, or separately.
You’ll pay anywhere between 10% to 37% in tax. To figure out your income crypto tax rate, just identify which Federal Income Tax bracket you’re in. The corresponding percentage figure under the Tax Rate column is your tax rate.
US Federal Income Tax Brackets 2021-2022
How to work out how much you owe in crypto income tax
You’ll add the total of all cryptocurrency earned between the US financial year of 2021 and 2022 to any other income you earned in the same period - like a salary or rental income.
- You’ll need to know the value in dollars of the crypto you earned on the day you earned it - a crypto tax calculator like Koinly does this for you automatically.
- Add all your income together.
- Multiply your total income by your tax rate.
- You might receive allowances and discounts based on your personal circumstances. The following example doesn’t take this into account.
Don’t forget - anytime you receive crypto, you’ll pay Capital Gains Tax on it when you later sell, swap, or spend your crypto. Even though you already paid Income Tax on it.
Between 16th of April 2021 and 14th of April 2022 Claudia earns $40,000 from her job and $10,000 in crypto earnings. Her total income is $50,000. Claudia is filing as the head of her household, and so her Federal Income Tax rate is 12%.
She will pay 12% Income Tax on $50,000 which is $6,000.
Tip: The above example is of a flat Income Tax rate. Some states use a flat Income Tax rate, but other states impose Income Tax at a graduated rate. Look up your state tax laws to see which applies to you.
How and when is crypto taxed as a capital gain in the US?
Because crypto is viewed as property, there are some transactions that are viewed as a disposal, and subject to Capital Gains Tax. These include:
- Profits from selling crypto for fiat currency, for example USD.
- Profits from swapping crypto with crypto.
- Using cryptocurrency to purchase goods and services.
The amount you’ll pay is dependent on how much you earn and how long you’ve held the asset.
US short-term gains tax rate
If you’ve held a crypto asset for less than a year and you sell it, this amount you pay is based on your Federal Income Tax bracket, so your crypto tax rate will be anywhere between 10% to 37% depending on how much you earn.
You bought 1 BTC for $10,000 in September 2020. You sold 1 BTC for $30,000 in August 2021. You held your asset for less than a year so it’s subject to the short-term capital gains tax rate.
Your cost basis is $10,000, as you had no transaction fees.
$30,000 - $10,000 = $20,000. You made a $20,000 capital gain.
You earned $60,000 in income this financial year, putting you in the 22% tax bracket as you file taxes as an individual. You’ll pay 22% in tax on $20,000, so $4400.
US long-term gains tax rate
The IRS taxes long-term gains far more favorably than short-term. This includes a Capital Gains Tax allowance for long-term gains.
CGT Allowance for Long-Term Gains
If you earn under $40,400 a year as a single taxpayer, you won’t pay any tax on capital gains. If you’re the head of household, this allowance goes up to $54,100 a year. If you’re filing jointly as a married couple, this allowance is $80,800.
If you’re over the allowance amount, it’s still good news for HODLers. For most people, long-term gains are taxed at a much lower rate than short term gains.
If you’ve got losses, you can use these to offset any gains, up to a maximum $3,000 net capital loss if you’re filing as an individual or filing jointly as a married couple. If you’re filing separately as a married couple, the maximum net capital loss you can claim is $1,500.
Don’t worry if you’ve got more losses than this. You can roll your unused capital losses over into future tax years to offset future gains. Losses have no expiration.
Are any crypto transactions exempt from tax in the US?
Sure! The following crypto transactions are not subject to Income or Capital Gains Tax:
- Buying crypto with fiat currency.
- HODLing crypto.
- Transferring crypto between your own wallets.
- Gifting crypto (up to $15,000 per gift and recipient).
- Donating crypto (tax deductible).
When to file US taxes
You need to file your taxes by the 15th of April 2022. Though the IRS gave an extension in 2021 due to the Covid-19 pandemic, there is no indication that they will do so again this year.
How to file US taxes with Koinly
You need to keep a record of all your crypto transactions, including how much you bought assets for and how much you sold assets for, as well as receipts for all these transactions.
For crypto investors who trade at volume, this in itself is a lot of work. Let alone then identifying and calculating the different types of taxes for each transaction. This is why using crypto tax software like Koinly is a much easier option when it comes to crypto taxes.
Once you have a record of your crypto transactions and you've calculated your taxes correctly, there's several forms you'll need to file your annual taxes with the IRS:
Form Schedule D: This form reports your total capital gains and losses, including from crypto investments.
Form 8949: This form is added to Schedule D. It logs the details of your crypto transactions in relation to capital gains and losses. This includes the FMV the day you bought it, the FMV the day you sold and the subsequent profit or loss of each transaction.
Form Schedule 1: Any crypto taxed as income belongs on this form - on line 8 specifically.
Once you've filled out the forms you need to, or used crypto tax software to generate them automatically, file them using an online tax service like Free File or Turbo Tax before the tax deadline.
We have loads more helpful tax tips for American crypto investors in our US Crypto Tax Guide.