How is Cryptocurrency Income Taxed

Most often when you think of crypto tax - you'll likely think of Capital Gains Tax. But it might surprise you to know there are many transactions where crypto is actually subject to Income Tax too. Let's take a look at Income Tax on crypto and which transactions you'll pay Income Tax on.

Income tax

Just as income can originate from work or investments and be taxed under Income Tax, so too can crypto income. In terms of cryptocurrency, the parallels look roughly like this:

• Getting paid in crypto tax - like a salary.
• Staking rewards tax - like a dividend.
• Tax on mining tokens - like additional income.
• Airdrops tax - like a bonus.
• Tax on DeFi activities - like additional income.
• Tax on crypto referral bonus - like a commission.

How much do you pay?

You'll pay the same rate of Income Tax as you do on your regular income.

Allowances

Some countries give a personal allowance on income - that is a chunk of income that is tax free. If you're under that allowance, you won't pay Income Tax on your crypto.

Could you pay both income and capital gains tax?

Yes. How crypto is received, and disposed of, are seen as two separate events from a tax perspective.

Let’s imagine your receive crypto via an airdrop and that the coins are worth $50. You'll need to pay Income Tax at your regular tax rate on the fair market value of those coins on the day you receive them.

Later, decide to sell your airdropped coins for $80, so you need to calculate whether you made a profit or loss.

$80 - $50 = $30. You have a capital gain of $30, which you'll need to pay Capital Gains Tax on - even though you've already paid Income Tax on the original $50.

Learn more: Crypto Tax 101: Capital Gains Tax

Crypto Income Tax in the USA

In the US, cryptocurrency transactions that are classified as income are taxed at your regular Income Tax bracket. Some of these transactions may also be subject to Capital Gains Tax upon disposal. Income can come from:

• Getting paid in crypto - like a salary.
• Staking rewards and liquidity pools - like dividends.
• Forks - excluding soft forks when no new coin is received.
• Mining tokens - like income.
• Airdrops - like bonuses.
• A variety of DeFi activities where you earn new tokens - like additional income.
• Referral bonus - like commission.

How to report Income Tax to the IRS

Fill in Schedule 1 Form 1040: Any crypto earned as an income needs to be added to Schedule 1 Form 1040.

Crypto Income Tax in Australia

In Australia, cryptocurrency transactions that are classified as income are taxed at your regular Income Tax bracket rate. Income can come from:

• Getting paid in crypto - like a salary.
• Staking rewards and liquidity pools - like dividends.
• Mining tokens - like income, only at trader level. Hobby miners do not pay income tax.
• Most airdrops - like bonuses, excluding initial allocation airdrops which are tax free upon receipt.
• A variety of DeFi activities where you earn new tokens - like additional income.
• Referral bonus - like commission.

How to report crypto tax to the ATO?

Crypto investors in Australia need to declare their profits, losses and income in their Individual Tax Return form. You can file from the 1st of July and the deadline is the 31st of October 2022.

Crypto Income Tax in the UK

In the United Kingdom, cryptocurrency transactions that are classified as income are taxed at your regular Income Tax bracket. Income can come from:

• Getting paid in crypto - known as 'money's worth' and is subject to National Insurance too.
• Staking rewards and liquidity pools - like dividends.
• Mining tokens - like income, only at trader level. Hobby miners do not pay income tax.
• Airdrops - like a bonus in most instances.
• A variety of DeFi activities where you earn new tokens - like additional income.
• Referral bonus - like commission.

How to report crypto tax to the HMRC?

You need to report any gains from the previous year in your Self Assessment Tax Return by the 31st of January 2022.

How to calculate crypto income with Koinly

A crypto tax calculator like Koinly can do crypto income tax reporting for you! Koinly is designed to import all of your crypto trades and transactions from the exchanges and wallets you use, and organizes your data into capital gains and income.

Because each country treats crypto taxes slightly - or very - differently, you can tell Koinly how to deal with 'grey area' income types like airdrops, staking rewards, mining and forks. This is done in your settings.

You're also able to tell Koinly which deposits - that is, crypto coming in to your account - was income from sources like airdrops, mining, staking and so on.

To do this, select the transaction in question and simply tag any airdrops, staking rewards, mining and forks. Koinly does this automatically in most cases but sometimes the data imported may not tell Koinly that a transaction is a reward or mining income.

Once everything is correct, go ahead and download your crypto tax report from the Koinly Tax Reports page. Koinly offers a number of different tax reports to choose from. At tax time, you can submit the form to your accountant, or submit your taxes yourself.