Crypto rewards like referral bonuses, APY rewards and crypto cashback all offer investors ways to earn crypto with very little effort, making them a popular choice. But as with all crypto investments, your tax office will want to know about your crypto rewards and take a cut. We’re covering everything you need to know about crypto rewards and how they’re taxed.
What are crypto rewards?
Crypto rewards could refer to many different transactions, including:
- Referral Bonuses
- APY rewards - like Binance Earn
- Crypto cashback
- Staking rewards
Let’s take a quick look at each.
Crypto exchanges want more customers and word of mouth marketing is one of the best ways to get them. That’s why they’ve created affiliate schemes where you’ll get a referral bonus every time someone signs up to their platform thanks to your recommendation. You can earn in either crypto or in fiat currency. Here’s some popular referral schemes as an example of potential income:
- KuCoin affiliate program: Refer friends to trade on KuCoin and you'll get 40% of the trading fees.
- Trezor affiliate program: Earn between 12% - 15% in commission for each referral - you can even choose to be paid out in Bitcoin.
- Coinbase affiliate program: You'll get 50% of your referrees' trading fees for the first 3 months after they open a Coinbase account.
- Koinly affiliate program: We've got our own affiliate program too! You can earn up to 40% in commission for each person you refer to Koinly to do their crypto taxes.
Many exchanges offer ways for you to lock up your crypto and earn passive income from it - like Binance Earn and Crypto.com Earn. Depending on the product you choose, you can earn up to 40% APY on some crypto - or even more for longer lock up periods. Some popular options for APY rewards include:
As well as centralized exchanges, there are also a lot of decentralized exchanges offering incredible APY rewards in exchange for liquidity.
Want to spend crypto in thousands of stores? A crypto credit card or debit card lets you do just that. In even better news, you can also get cashback in crypto every time you spend. Many large crypto exchanges are offering their own crypto credit cards, each with a different cashback rate, including:
Staking is another way you can earn rewards from crypto you already own - by validating transactions on a given blockchain. You can choose to stake third party through a service like Coinbase or Kraken, or you can do it directly if you have enough crypto. Popular proof of stake blockchains include:
Whatever crypto rewards you earn - your tax office is going to want to know about it.
Crypto rewards tax
In most parts of the world - crypto is taxed in a similar way, including your crypto rewards. It’ll either be subject to Capital Gains Tax or Income Tax.
You’ll pay Capital Gains Tax on any profit (capital gain) when you sell, trade, spend or gift your crypto. Meanwhile, you’ll pay Income Tax on your crypto based on the fair market value when you receive it when you’re seen to be earning crypto.
Each crypto reward has a slightly different kind of tax, so let’s break it down.
Referral bonuses tax
Referral bonuses are pretty straightforward. They’re seen as a kind of additional income from a tax perspective. So you’ll pay Income Tax on any referral bonuses you get - whether you’re paid in fiat currency or crypto.
If you get paid in crypto, you need to identify the fair market value of that crypto on the day you received it to calculate how much additional income you had.
When you later sell, trade, spend or gift (in most countries) that crypto - you’ll need to pay Capital Gains Tax on any profit. This would be the difference in value from when you acquired the crypto and when you sold it.
APY rewards tax
You can think of APY rewards as similar to interest. You’ll generally get paid out APY rewards weekly, monthly or sometimes quarterly - depending on how long you’ve agreed to lock up your crypto.
In most countries, you’ll pay Income Tax based on the fair market value of your crypto at the point you receive it.
Crypto cashback tax
It’s bad news for tax when you spend crypto. This is because most crypto credit and debit cards convert your crypto to fiat currency when you spend. So you’re basically selling your crypto - which is subject to Capital Gains Tax.
You’ll only pay Capital Gains Tax on any profit - so the difference in value between when you acquired your crypto and when you spent it.
When it comes to the actual cashback, it’s better news. No tax office has released guidance on crypto cashback just yet, but there’s plenty of guidance on fiat cashback and it’s tax free, so we can assume crypto cashback would be treated in a similar manner.
Staking rewards tax
Tax on staking rewards really varies depending on where you live. Some countries - like the UK - may even tax under Capital Gains Tax when you move your asset to be staked. Meanwhile other countries - like Austria - say staking as part of a consensus mechanism like Terra or Avalanche is tax free entirely.
To further confuse things, while the USA previously taxed staking rewards as Income - a recent court challenge has suggested that this might not always be the case in the future for untraded staked coins and tokens.
You should check out our country guides for specific staking tax guidance where you live.
How Koinly crypto tax calculator can help
Whatever your crypto rewards and other crypto investments, Koinly can help simplify your crypto taxes. We work with more than 50 crypto wallets, 350 crypto exchanges and support more than 6,000 cryptocurrencies.
All you need to do is sync all the crypto wallets and exchanges with Koinly using API or by importing a CSV file of your transaction history. Once you’ve done this, you’ll be able to see all your crypto transactions right from your Koinly account.
When it comes to your rewards - we let you choose how you want to treat them from a tax perspective in your Koinly settings. Just head onto the settings page and toggle ‘treat rewards as income’ on or off.
You can also tag specific transactions as rewards to make sure they’re included as rewards in your tax report.
Once you’ve got everything set up how you want it for your crypto taxes, head over to the tax summary page to download your crypto tax report. Koinly offers a variety of reports based on your location - for example the IRS Form 8949 and Schedule D, the ATO myTax report and a HMRC Capital Gains Summary.