This Quick view provides an outline of the tax treatment of cryptocurrency in the United States. The liability for tax will depend on the type of cryptocurrency transactions being undertaken and these are explored in more detail below.
This Quick view covers:
- How is cryptocurrency regulated in the United States?
- Federal taxes
- Federal income taxes
- Mining and tax implications
- Capital gains taxes
- State taxes
- Penalties
This Quick view can be used in conjunction with the following Quick views: Cryptocurrency regulation and enforcement, Understanding data privacy compliance challenges in blockchain and cryptocurrency and Introduction to cryptocurrency and how it works.
1. How is cryptocurrency regulated in the US?
The regulatory framework for cryptocurrency within the United States is currently ambiguous and continuously developing. Digital assets are subject to oversight by various federal bodies, each applying distinct interpretations based on their individual evaluations of crypto's fundamental attributes. This complexity is further compounded by potential legislative actions and the establishment of independent regulations at the state level. Specifically, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS) each uniquely define and regulate cryptocurrencies.
- SEC: the SEC considers cryptocurrencies to be securities, prioritizing investor protection. This mandate leads the agency to require formal registration of cryptocurrency offerings that qualify as ‘investment contracts.’ Its 2023 ‘regulation by enforcement’ strategy, exemplified by significant litigation against entities like Coinbase, and its 2024 approval of Bitcoin and Ethereum exchange-traded funds (ETFs) illustrate this approach.
On February 27, 2025, the SEC, under Acting Chair Mark Uyeda, signaled a shift away from regulation by enforcement with two key developments. First, the SEC dismissed its long-standing lawsuit against Coinbase with prejudice. The 2023 suit alleged Coinbase operated as an unregistered exchange listing securities. Coinbase contested this, citing a lack of regulatory clarity. The SEC stated the dismissal would aid its regulatory reform efforts for the crypto industry. This follows recent dismissals of cases against other major crypto firms, indicating a policy change. Commissioner Hester Pierce, head of the new Crypto Task Force supported the Coinbase dismissal, stating the SEC’s broad application of the Howey test – a transaction is an investment contract subject to securities regulations if it is an investment of money in a common enterprise with an expectation of profits derived from the efforts of others - had been detrimental. However, she cautioned that enforcement would still be used in appropriate cases. Second, the SEC's Division of Corporation Finance stated that meme coins generally do not qualify as securities under federal law. Applying the Howey test, the SEC found that meme coin transactions do not involve investment in an enterprise with an expectation of profits derived from others' efforts, thus not requiring SEC registration or offering federal securities law protections. - CFTC: The CFTC's regulatory authority over commodities includes defining them as assets underlying futures contracts, overseeing the active cryptocurrency futures market, and a history of enforcement against unregistered Bitcoin futures exchanges.
On March 28, 2025, the CFTC withdrew two pieces of crypto guidance, citing increased market maturity and the need for consistent treatment with other derivatives. This action further streamlines the CFTC's approach to crypto regulation. The withdrawn guidance included a 2018 advisory on virtual currency derivative listings and a 2023 advisory on risks associated with clearing digital assets. The CFTC stated the 2018 guidance was no longer needed due to market growth and experience, while the 2023 guidance was rescinded to ensure fair treatment of crypto derivatives. - IRS: the IRS considers selling, trading, or purchasing with cryptocurrency a potentially taxable event, subject to capital gains tax rates, a policy in place since 2014.
On March 26th, 2025, the Senate overturned a Biden-era rule requiring cryptocurrency platforms to report customer transactions to the IRS. The vote repeals a rule aimed at improving tax compliance and parity with traditional brokerages. However, critics warn it will hinder efforts against illicit finance and cost billions in lost revenue. The vote precedes a White House crypto summit focused on balancing innovation and financial stability in the evolving digital asset landscape, where regulatory clarity is seen as crucial.
2. Federal taxes
As the Internal Revenue Service (IRS) indicated in its Notice 2014-21, at the federal level it generally treats cryptocurrency or ‘convertible virtual currency’ as property and general tax principles apply. (‘Convertible’ refers to virtual currency that is used as a medium of exchange and that has an equivalent value in real currency (ie, the US dollar or a foreign currency), or that acts as a substitute for real currency.)
As a result, US taxpayers need to properly report certain cryptocurrency transactions to the IRS. Gains or losses on cryptocurrency transactions must be reported and income received in the form of cryptocurrency must be reported as ordinary income. On the other hand, the purchase of cryptocurrency with real currency does not have to be reported if that was the taxpayer’s only cryptocurrency transaction in a given tax year. If there were multiple such transactions, the gains or losses realized from those transactions would have to be reported. Cryptocurrency is explicitly not treated as currency that could generate a foreign currency gain or loss for US federal tax purposes but trading in cryptocurrency is defined as a ‘non-functional currency transaction,’ which calls for the value of the transaction to be translated into a functional currency (eg, US dollars) for tax purposes. The amount of any gain or loss would be ‘translated’ into US dollars and reported accordingly.
In accordance with the Frequently Asked Questions on Virtual Currency Transactions in Notice 2014-21 (FAQs), the value of cryptocurrency for federal taxation purposesis the fair market value of the cryptocurrency in US dollars as of the date of receipt. Taxpayers must therefore determine the fair market value of the cryptocurrency in US dollars as of the date of payment or receipt. If a cryptocurrency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the currency is determined by converting the cryptocurrency into US dollars (or into another ‘real currency’ which in turn can be converted into US dollars) at the exchange rate.
3. Federal income taxes
Like more traditional forms of income, income received in cryptocurrency is subject to income taxes. When computing their gross income, a taxpayer who receives cryptocurrency as payment for goods or services must include the fair market value of the virtual currency, measured in US dollars, as of the date that the virtual currency was received. Therefore, when an independent contractor or a self-employed individual receives cryptocurrency for their services, this constitutes self-employment income or wages. The received cryptocurrency’s fair market value is subject to the usual withholding tax and reporting requirements. To ensure compliance, taxpayers should maintain a record of the price at which their cryptocurrencies were bought and sold as at each transaction date. The definitions are the same for individual and corporate income taxes so the generic term ‘taxpayer’ is used. See IRS Publication 525 Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services. See also section 4 below which relates to capital gains taxes which may also apply where cryptocurrency is being held for investment purposes. For state tax considerations, see section 5 below.
4. Mining and tax implications
‘Mining’ activity (ie, the process by which new Bitcoins are created which involves confirming or validating transactions on the network and adding them to the public ledger), unless carried out within the scope of an employee’s duties is considered a self-employment activity even if done as a hobby. Taxpayers who ‘mine’ cryptocurrency and who are rewarded with currency are deemed to realize gross income upon the receipt of the cryptocurrency. The fair market value of the currency as of the date of its receipt is includible in gross income. The net earnings resulting from the mining are subject to self-employment tax. Mining done on behalf of an employer is not regarded as self-employment income. For further guidance on how this applies in practice, see Chapter 10 of IRS Publication 334 Tax Guide for Small Business, for more information on self-employment tax; and IRS Publication 535 Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit. See also the Joint Committee of Taxation’s white paper Into the Woods: US Congress Provides a Roadmap to Solving Cryptocurrency Tax Issues.
5. Capital gains taxes
When a sale of cryptocurrency results in a profit, this profit may be considered either ordinary income or a capital gain, depending largely on how the taxpayer treats the currency. There is no specific capital gains tax rate for cryptocurrency and it is based on the general capital gains tax rules. If the taxpayer holds the cryptocurrency for investment purposes, it will generally be treated as a capital asset. In that case, gains or losses from its sale or exchange will be regarded as capital gains or losses. Like other capital gains and losses, these gains or losses must be reported and the capital gains tax rate due on trading or sale of cryptocurrency will depend on how long you have held the asset for and how much you earn. Tax rates for short-term gains (where currency is held for less than a year) are higher than for long-term capital gains.
If the taxpayer holds the cryptocurrency mainly for sale to customers in their trade or business, it will be treated as a non-capital asset. IRS Publication 544 outlines the differences between capital and non-capital assets.
6. State taxes
States take diverse approaches to both taxes and cryptocurrency, and as a result a variety of state tax laws potentially apply. State guidance on how virtual currency will be treated under tax law has been explicitly addressed to varying degrees. Consequently, the landscape of rules to navigate and understand state tax liability is complex and ambiguous.
6.1 State income tax
States that impose income taxes have only recently begun to address the tax implications of cryptocurrency. Generally, state income tax laws tend to mirror the IRS federal income tax laws, such that income received as cryptocurrency probably will be taxed as income to the person or entity receiving it; however, analysis on a case-by-case basis is recommended.
6.2 Sales and use taxes
Sales and use taxes may apply to sales of goods and services paid for with cryptocurrency. The amount of the tax due is calculated based on the value of the virtual currency on the date of purchase. Understanding the implications of such taxes can be difficult even with traditional transactions. Most states collect sales and use taxes on a statewide basis but a handful (Alaska, Delaware, Montana, New Hampshire, and Oregon) do not. In many states, such taxes are also collected locally. In addition, tax rates vary – at both state and local levels. The sales tax collected is the tax set by the state in which the goods sold are delivered. The seller collects the tax and remits it to the state.
To complicate matters further, most states have not clarified whether or how their sales and use taxes apply to sales of goods and services paid for with cryptocurrency. Many do not address the issue directly. Others, such as California and New York, explicitly treat cryptocurrencies as cash equivalents when a retailer makes a taxable sale and tax purchases with cryptocurrency in the same way as they tax cash purchases (ie, based on the fair market value of the currency as at the date of payment). If you accept cryptocurrency as payment you are advised to keep records that show the values in dollar amounts as of the transaction date.
Similarly, there is little guidance on whether the purchase and sale of cryptocurrency is subject to sales and use taxes. Most states have not addressed this issue but those that have tend to regard the purchase of cryptocurrency as not subject to sales or use tax. For example, California only imposes sales and use taxes on transfers of tangible personal property (eg, vehicles, furniture, machinery, and equipment) so the tax does not apply to purchases and sales of cryptocurrency.
For further information, see How-to guides: Sales and use tax considerations in e-commerce and Streamlined sales tax.
6.3 Intangible personal property taxes
Taxes on intangible personal property (ie, assets that cannot be physically touched but that hold value) can also be relevant and could apply to patents, copyrights, or stocks. However, most states do not impose property taxes on intangible property. Moreover, some have explicitly exempted cryptocurrency from property taxes. In Arizona, a proposal was introduced in 2023 to amend the state constitution to include such an exemption; however, that proposed exemption was not approved by the legislature.
6.4 Gross receipts taxes
Gross receipts taxes, commercial activity, or commerce taxes (which apply to the gross sales of a business without accounting for expenses) are a particularly unpopular form of tax. Seven states impose statewide gross receipts taxes. The tax rates often vary depending on the particular industry.
Some states are introducing targeted exemptions from gross receipts taxes to encourage cryptocurrency-related activity in their jurisdictions. Mining is an energy-intensive undertaking and therefore, in order to entice cryptocurrency miners, some states (such as Kentucky) are exempting the sale or purchase of electricity used in the commercial mining of cryptocurrency from gross receipts taxes, as well as sales and use taxes imposed on utilities. States offer these tax advantages in an effort to attract crypto mining businesses to locate in the state and, it is hoped, to promote economic development.
7. Penalties
Taxpayers may be subject to penalties for failure to comply with tax laws or information reporting requirements. These could include accuracy-related penalties on the basis of underpayments attributable to virtual currency transactions or penalties for failure to report in a timely manner. Intentional evasion of income taxes is also a criminal offense.
Penalty relief may be available to taxpayers and persons required to file an informational return who are able to establish that the underpayment or failure to properly file information returns is due to reasonable cause.
Evading cryptocurrency taxes is a federal felony, punishable by a fine of not more than $100,000 ($500,000 in the case of a corporation), or imprisonment for not more than five years or both together with the costs of prosecution. See 26 USC 7201.
Additional resources
IRS – Digital Assets
IRS – Notice 2014-21
IRS – Rev. Rul. 2019-24
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