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Paid in Crypto for Work: Ordinary Income and Basis

Short answer: The IRS FAQ says that when you receive property, including virtual currency, in exchange for services, whether or not you are an employee, you recognize ordinary income. The amount is the fair market value in U.S. dollars when received (for on-chain transactions, the date and time the transaction is recorded on the ledger). That same value is your basis in the crypto.

Contractors

For an independent contractor, the dollar value of virtual currency received for services is self-employment income and is subject to self-employment tax. On the IRS Digital assets page, contractor payments are reported on Schedule C. See 1099-NEC filing for payers.

Employees

Virtual currency paid as wages is, at its dollar value on receipt, subject to income tax withholding, FICA and FUTA and must be reported on Form W-2 (IRS FAQ 11). Employees report wages on Form 1040.

Made-up example

You design a logo and are paid 0.02 BTC when it is worth $1,500. Ordinary income $1,500; your basis $1,500. Three months later you sell for $1,800: capital gain $300 (short-term if held one year or less; see holding periods and losses).

When you spend crypto you hold

Paying for services with crypto you hold as a capital asset triggers a capital gain or loss: the difference between the value of what you received and your adjusted basis (FAQ 14 and 15). The same applies to exchanging it for goods or other virtual currency (FAQ 16-17).

Records

The IRS says to keep the dollar fair market value of all digital assets received as income or as payment in the ordinary course of business, with date and time.

FAQ

Does a 1099-DA cover the payment I received? Not covered here; see 1099-DA vs Form 8949.

Which exchange rate do I use? The IRS FAQ has separate answers for exchange-based and peer-to-peer receipts (not read in full).

What we could not verify

• The IRS FAQ Part I applies by its own terms to transactions before January 1, 2025; Part II (FAQs 47-111, for 2025 onwards) was not read, so check it for current-year details.
• How to value crypto without a published price, and the exchange-rate rules (FAQ 26-28 not read in full).
• Payroll mechanics and employer reporting beyond the FAQ statement.
• State tax treatment.

Sources (official)

• IRS, Frequently asked questions on virtual currency transactions (page last reviewed or updated June 30, 2026) — https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions (read October 17, 2026; Part I, FAQs 1-46, which the IRS says generally applies to transactions completed before January 1, 2025)
• IRS, Digital assets (page last reviewed or updated September 2, 2026) — https://www.irs.gov/filing/digital-assets (read in full October 17, 2026)

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Not tax advice. Examples use made-up figures. Nothing here has been reviewed by a tax professional. We may earn commissions from affiliate links where marked; see the disclosure.