IRS Bitcoin Rule: 5 Things Accountants Need to Know

Item 5: Brace for new work.

By Hitendra Patil
 Pransform Inc.

You may need to start asking your clients about Bitcoin. New IRS guidance treats Bitcoins and other crypto-currencies not as money, but as property, for tax purposes and applies immediately to all returns. See the full text of Notice 2014-21 (PDF).

Among other things, the IRS advised that:

  • As an employer, if you pay wages in Bitcoins:
  • You must report it on a W-2.
  • You must ensure income tax withholding.
  • You must ensure payroll taxes deduction.
  • If you pay contractors and service providers in Bitcoins, such payments are taxable and self-employment tax rules generally apply.
  • If you make a payment of $600 or more in a taxable year to an independent contractor for the performance of services, you are required to report that payment to the IRS and to the payee on Form 1099-MISC, Miscellaneous Income.