Miami Plans to Pay City Employees in Bitcoin. Should You Accept Crypto Wages?
Bitcoin wages may grab headlines, but there are tax and legal implications to consider.
Miami Mayor Francis Suarez is pushing ahead with his mission to make Miami the crypto capital of the U.S. -- and even the world. In a video interview this week, he told Bloomberg Technology that the work was a "major priority."
But to make progress, Suarez still needs approval from authorities in Tallahassee. Right now, Miami is not even allowed to hold cryptocurrency on its balance sheet. The mayor is pushing for this and two other measures: Firstly, he wants Miami residents to be able to pay fees and maybe also taxes in Bitcoin (BTC). And second, he wants to be able to pay city workers in crypto. "We're going for a request for proposal in October to allow our employees to get paid in Bitcoin," he said.
Other organizations -- most notably Twitter -- have toyed with the idea of crypto salaries. And major sports figures like the NFL's Russell Okung and the NBA's Cade Cunningham have drawn headlines by asking to be paid in crypto or converting their salaries into cryptocurrency.
Are cryptocurrency salaries a good idea?
If you or your company are considering cryptocurrency payments, it isn't something to take lightly. There are a lot of factors to consider, including the following.
1. How will the crypto portion of your salary be calculated?
If you're considering receiving crypto wages, it is important you understand the nuts and bolts of the proposal. For example, is the plan to convert a percentage of your wages into crypto each month? If so, make sure you know what the conversion rates will be, who will pay any fees, and what platform/wallet you will use.
Unless your employer has huge crypto reserves they'll use for wages, it's extremely unlikely they'd want to negotiate a full salary in Bitcoin or Ethereum (ETH). It would leave both you and them exposed to the volatility of the crypto market. Until crypto payments become more mainstream (assuming they do), this is a quite risky option.
2. Are you ready for crypto volatility?
If you're considering accepting a cryptocurrency salary, you're likely well aware of the high volatility in this market. But it's one thing to handle price fluctuations as part of a buy-and-hold investment. It's quite another when we're talking about your monthly wage.
Your fixed costs -- from your grocery shopping to your rent or mortgage payments -- will likely remain in U.S. dollars. If the price of Bitcoin falls by 20%, so will the real-world value of your wage. At the very least, you'll need to have a substantial emergency fund in place to tide you through in the event that crypto prices fall for a prolonged period of time.
3. Is it legal?
By federal law, wages must be paid in "in cash or negotiable instrument payable at par." But there isn't a clear line on whether cryptocurrency counts as "at par." Added to which, according to JD Supra, different states have additional rules. For example, some states require wages to be paid in U.S. currency.
Before you agree to receive your salary in crypto, make sure that everything is clearly set out in writing and your company is in line with any state regulations.
4. How will taxes work with crypto wages?
Cryptocurrency taxes are complicated. The IRS treats crypto as property, and you need to track each transaction. Crypto trades are taxable events that are subject to capital gains and losses. But payroll taxes also need to be taken into account.
If you plan to accept crypto wages, it would be sensible to talk to a professional tax advisor to make sure you and your employer are on the right side of the law.
There are better ways to manage your crypto investments
Crypto payments are fast and secure, and a crypto salary might make sense in one or two specific scenarios. For example, if you work internationally, receiving cryptocurrency payments could reduce remittance costs and speed up payment processing.
But in general, cryptocurrency is not mainstream enough to warrant tying up your wages. It is still too risky, and too difficult to use for day-to-day spending.
There are a number of positive indications that cryptocurrencies are here to stay, but we don't know that for sure. It's still a relatively new and untested market. Putting aside the legal and practical considerations above, your monthly income is simply too important.
A better option? Why not convert some of your income into crypto each month after it hits your bank account? Many cryptocurrency exchanges even allow you to automate your crypto purchases, so you can set up an automatic purchase order to take place shortly after payday.
That way, if there's a dramatic change in the market, you can easily put that transfer on hold. And since you're in control, you can make sure you have cash on hand to cover your monthly obligations.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Emma Newbery owns Bitcoin and Ethereum.
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