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The Internal Revenue Service (IRS) has officially approved the use of cryptocurrency for payroll, signaling a significant shift in how U.S. employers can compensate workers. Under the new guidance, wages paid in digital assets are treated as taxable income, requiring standard withholding for federal income tax, Social Security, and Medicare. Employers must also report payments at fair market value on the payment date, converting crypto into U.S. dollars to ensure compliance.
“The IRS framework integrates cryptocurrency into payroll while maintaining rigorous tax compliance,” the agency noted, emphasizing the importance of accurate valuation to avoid penalties.
Navigating Form 1099-DA
From 2025, the introduction of Form 1099-DA mandates detailed reporting by brokers and exchanges on digital asset transactions, with payroll implications for companies paying in crypto. Employers must track individual wallets and ensure withholding aligns with non-cash compensation rules, creating potential challenges for multinational businesses and remote teams.
Tax professionals warn that wallet-level tracking, combined with evolving state tax requirements, could complicate payroll administration. Delayed cost basis reporting until 2026 further increases complexity, particularly for firms managing multiple crypto wallets.
Industry Reactions
Reactions among accountants, tax advisors, and crypto enthusiasts are mixed. While some see crypto payroll as an opportunity to attract talent and offer innovative compensation, others caution that volatility and reporting obligations could create unexpected tax liabilities for employees.
“Adding crypto to payroll could become a nightmare for compliance teams,” noted a tax consultant on professional forums, highlighting the rigorous demands of the 1099-DA rules.
Economic and Strategic Implications
Despite the challenges, crypto payroll may appeal to tech-savvy talent and firms seeking flexible, instant-settlement compensation options. However, market fluctuations—such as a sudden drop in Ethereum or Bitcoin values—can trigger unanticipated tax consequences if employees convert assets to fiat immediately.
Companies are increasingly investing in compliance software or third-party services to automate withholding and reporting, mitigating errors and ensuring adherence to IRS regulations. Experts predict these measures will also strengthen IRS enforcement and potentially increase audit activity for high-net-worth employees paid in crypto.
Global Context
Internationally, similar tax developments are emerging. For instance, Indonesia introduced income tax withholding on crypto payments in August 2025, reflecting a broader trend of integrating digital assets into formal tax systems. The U.S. IRS framework provides some relief for good-faith compliance efforts, signaling a balance between innovation and regulatory oversight.
As the use of cryptocurrency in payroll grows, businesses must adapt quickly to blend innovation with rigorous compliance, managing volatility while leveraging the benefits of digital assets. The IRS guidance sets a precedent for how governments worldwide may regulate emerging payment technologies in the years ahead.
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