How to file your Pax Dollar (USDP) taxes with Koinly
Pax Dollar (USDP) is a fully collateralized stablecoin, pegged at a 1:1 ratio with the US dollar, issued on the Ethereum blockchain by Paxos, a New York-based fintech company. But despite being able to use your USDP in the same way you'd use dollars, the tax implications are very different as Pax Dollars are a crypto asset. Don't worry though, Koinly can help you calculate taxes for USDP and thousands of other ERC-20 tokens. Here's how.
Sign up to Koinly and choose your country and currency
Connect Ethereum with Koinly to import all your trades safely and securely - including ERC-20 tokens like USDP
Koinly identifies the cost basis of all your coins and tokens, as well as your taxable transactions
Koinly calculates any capital gains, losses, and income from your taxable transactions
Koinly generates your crypto tax report - ready to help you file with your tax office, or hand it over to your accountant
How are Pax Dollars taxed?
Although your Pax Dollars work like a tokenized dollar, USDP is a crypto asset, which means from a tax perspective it's treated very differently. The tax implications vary depending on where you live, so read our crypto tax guides for more information. But, generally speaking, two taxes may apply to your USDP transactions:
Capital Gains Tax:Â When you sell, swap, or spend USDP, you may need to pay Capital Gains Tax on any gain you made as a result.
Income Tax: When you earn new USDP tokens - for example, through staking rewards - you may need to pay Income Tax based on the fair market value of your USDP in your fiat currency at the point you received your tokens.
Can the IRS track USDP?
Most blockchains, excluding outliers like Monero, are public ledgers. This means anyone, the IRS included, can search and find transactions relating to a specific wallet. After this, all the IRS needs to do is be able to link your identity to a given wallet or transaction.
The IRS has a couple of methods to collect user data to do this. One of the more aggressive methods is using John Doe summons to compel centralized crypto exchanges to share customer data, potentially including details on any wallets you’ve transferred to or from using a centralized crypto exchange.
Another common method to collect user data is through 1099 forms - a kind of form that reports income from sources other than your employer. Many centralized crypto exchanges issue 1099 forms to users earning or trading over a certain amount in crypto and whenever you get a 1099 form, the IRS gets an identical copy.
Learn more about how the IRS tracks crypto.
How to get Pax Dollar tax documents
How to report your crypto taxes depends on where you live, but generally speaking, your tax office requires you to report your gains, losses, and income from USDP and other investments in your annual tax return.
To do this, you need to know the figures you'll be reporting. So you'll need to calculate your gains and losses from USDP - even if they’re negligible - as well as the fair market value of any income from USDP in your fiat currency on the day you received it. It's worth noting that even though gains and losses from stablecoins may be negligible, some tax offices - like the IRS - require taxpayers to report every single disposal of crypto, regardless of the gain or loss realized.
It's time-consuming, which is why most investors opt to use a crypto and USDP tax calculator like Koinly. Koinly can calculate your gains, losses, and income for hundreds of thousands of coins and tokens - including USDP.
All you need to do is connect your blockchain to Koinly and it’ll do the rest. Here’s how.
How to import Pax Dollar transactions to Koinly automatically
To import your USDP transactions into Koinly, you’ll need to connect each Ethereum wallet you use to Koinly.
This is really easy to do, you just need your public address - but remember, you’ll need to do this for each wallet you use to interact with USSP in order for Koinly to correctly identify your cost basis, transfers, sales, swaps, and more. As well as this, if you're transacting with USDP on centralized exchanges, you'll need to connect these to Koinly as well.
You can find steps on how to connect a variety of popular wallets and exchanges to Koinly on our integration pages, but here’s an example of how it generally works.
In your wallet
Open or log in to your wallet
Select the blockchain you’d like to connect to - in this example, Ethereum
Copy your public address
On Koinly
Sign up or log in to your Koinly account and go to the wallets page
Search for and select the blockchain you’d like to connect to - in this example, Ethereum
Give your wallet a name - for example - MetaMask or MyEtherWallet
Paste your public address
Select import
Important
Remember, you’ll need to do this for every wallet you use to interact with USDP (and any other tokens!) in order to calculate your crypto taxes correctly.
It’s really helpful to name your wallets when you’re adding them to Koinly. You'll be able to find transactions much more easily later on.
You may also be able to upload your transaction history to Koinly as a CSV file instead of connecting using your public address if you prefer, but this depends on the wallet you’re using. You can search for your wallet on our integration pages to find out more about how to get a CSV file from your wallet.
Your frequently asked questions
What is Pax Dollar?
Pax Dollar (USDP) is an ERC-20 token and stablecoin, issued by Paxos on the Ethereum blockchain. Each USDP token is pegged at a 1:1 ratio with the US dollar.
How does USDP work?
USDP is a fully collateralized stablecoin, so for every USDP token in circulation, there is $1 in cash or cash equivalent reserves to back it.
Where can I buy USDP?
What is the purpose of using USDP?
USDP and other stablecoins like it are popular with crypto investors as they offer access to the crypto market with a reduced risk of price volatility.
Is USDP safe?
USDP is issued by Paxos, a highly regulated and reputable US-based fintech company, and Paxos holds the reserves for USDP with regulated third parties. This said, Paxos has faced regulatory issues in New York before around issuing their other stablecoin BUSD. You should always DYOR and understand the risks involved before investing.
Is USDP a stablecoin?
Yes. USDP is a stablecoin pegged at a 1:1 ratio with the US dollar and is fully collateralized with cash or cash equivalent reserves.
Has USDP depegged before?
Yes. Pax Dollar briefly lost its peg in 2023 following reports the New York Department of Financial Services (NYDFS) was investigating the platform. However, it quickly restabilized.
How is Pax Dollar different from other cryptocurrencies?
Pax Dollar is a fully collateralized stablecoin. This means it's a crypto asset pegged to the value of another asset - the US dollar. Paxos holds 1:1 reserves to maintain this value.
What is the total supply of USDP?
The total and circulating supply of USDP at the time of writing is more than 800,000.
Is Pax Dollar regulated?
Certainly more than most other stablecoins. Because Paxos is a regulated trust in NY, the company itself is regulated by the New York State Department of Financial Services, meaning USDP reserves have some regulatory oversight. You can also see monthly audits of the reserves from a third-party accounting firm.
Can USDP be used for everyday purchases?
Yes. You can spend USDP on goods and services, the same way you'd spend cash. A word of warning though, spending crypto has very different tax implications than spending fiat currency.
Is USDP 100% backed?
Yes. USDP is 100% backed by cash or cash equivalent reserves You can see monthly audits of the reserves from a third-party accounting firm, WithumSmith+Brown, PC.
What blockchain is USDP on?
USDP is an ERC-20 token on the Ethereum blockchain.
Is USDP a good investment?
USDP is by no means the largest stablecoin, but it has found a market with investors looking for a highly regulated stablecoin issued by a US-based company. However, Paxos has faced regulatory issues recently, so you should always DYOR before investing.
Where can I stake USDP?
You can stake USDP on centralized exchanges like Nexo, as well as in liquidity pools on decentralized protocols like Uniswap.
Is USDP better than USDT, USDC and, other stablecoins?
USDP is similar to other stablecoins like USDT, USDC, and BUSD as they're all fully collateralized stablecoins - in fact, Paxos also issue BUSD. Some investors prefer USDP thanks to its transparency over its reverses and because Paxos itself is a highly regulated NY-based company. However, Paxos has faced some regulatory issues surrounding BUSD recently.
Do I have to pay taxes on USDP?
Yes, if you have gains or income from USDP investments, you'll pay tax on them. Although USDP can be used like a dollar, it is a crypto asset, meaning any gain from selling, swapping, or spending USDP is subject to Capital Gains Tax and if you've earned new USDP tokens - for example, via staking - may be viewed as additional income and subject to Income Tax upon receipt.
What tax forms do I need to file for USDP transactions?
How to file your USDP and other crypto transactions depends on where you live. In the US, taxpayers need to report every single time they sold, swapped, or spent USDP throughout the financial year - and any gain or loss no matter how small - in Form 8949 and Schedule D, as well as any crypto income in Form 1040 or Schedule C.
Who are Paxos?
Paxos Trust Company is a NY-based fintech company that specializes in blockchain technology. As well as issuing USDP and BUSD, Paxos issues PAX Gold - a stablecoin backed by physical gold, as well as a securities settlement service, crypto brokerage, and itBit crypto exchange.
