Is Getting Paid in Crypto a Good Idea?

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From paying bills to paying taxes, there are many complications to being paid in crypto.

Key points

  • Crypto is hard to use for bills and expenses.
  • The value of crypto varies significantly.
  • Income from crypto may be taxed twice.

A lot of public figures and celebrities have made headlines over the last few years with claims of being paid in cryptocurrency. The Mayors of Miami and New York City, for example, said they'd be taking part of their salaries in Bitcoin.

While these headlines could be written off as publicity stunts, the option to be paid in crypto for your work is spreading. You can find a few companies offering the ability to take some, or even all, of your salary in cryptocurrency. But it's the freelance market that really seems to be driving the trend, particularly when it comes to international payments.

On the one hand, it makes some sense. Crypto payments are relatively easy and low cost, especially compared to dealing with foreign banks and international transactions. Plus, there's a level of security and, arguably, anonymity, with crypto that isn't possible with more traditional payments.

But despite its growing prevalence and popularity, crypto is not the same as cash. There are many significant drawbacks to being paid in crypto for all but the most diehard crypto investors.

Crypto isn't a practical payment method

For the vast majority of workers, their salary is used to, well, live. You need to pay your rent or mortgage, buy food, and manage your utilities. With a traditional cash salary, this is easy. Everybody takes regular currency.

But that's not the case with crypto. Chances are pretty good your landlord isn't going to take Bitcoin, nor will your utility company. And while some retailers are starting to open up to the idea of crypto as a payment method, getting groceries with your Ethereum will likely require jumping through some hoops.

All in all, to actually buy the things you need for your everyday life will require cashing out for your local currency. Depending on the crypto exchange you use, this can add various fees, wait times, and general inconvenience you wouldn't have with a traditional paycheck.

Volatility can wreck your budget

One reason many folks are drawn to crypto is that it's a type of investment -- one that has a pretty decent track record for growth, at least over the long term. But crypto is remarkably volatile, and you can experience price swings in both directions in a blink of an eye.

For example, let's look at Bitcoin (CRYPTO:BTC). Over the last year alone, the value of a Bitcoin has varied from less than $30,000 to more than $65,000. And that volatility isn't limited to the long term. Bitcoin has been known to drop -- or rise -- more than $1,000 in a single day.

Sure, this can work in your favor; being paid on a low-value day means your salary could be worth more if prices increase. But the opposite is also true. You may be paid $500 worth of Bitcoin on a Tuesday, and see a drop in value by Thursday that makes your Bitcoin worth just $400.

This volatility may be manageable if you're only receiving part of your income in crypto. But if you're trying to pay your everyday expenses with crypto income, the volatility can make keeping a budget nearly impossible. How do you make sure you have enough for rent when you can't reliably determine how much money you'll have on any given day?

Income taxes with crypto go beyond the W2

Another big issue to crypto-based salaries are the various tax implications. Being paid in crypto, at least in the U.S., means paying taxes both when you receive the crypto as well as when you sell, trade, or use your crypto.

Firstly, being paid in crypto counts as ordinary income so far as the IRS is concerned. So, you'll need to figure out fair market cash value for the day you're paid as part of your income taxes. For example, say you're paid 0.1 Bitcoin as part of your salary on June 1. Whatever value that 0.01 Bitcoin has on June 1 must be reported as income for your income taxes.

Additionally, because crypto is seen by the IRS as property, any profit made when you sell the crypto (or trade it, or use it to make a purchase) is subject to capital gains taxes. Say you sell that 0.1 Bitcoin for $500 more than it was worth when you received it. You'll need to pay capital gains taxes on that $500 profit in addition to your regular income taxes.

Crypto salaries don't make sense -- yet

Although there are certainly some good reasons to consider being paid in crypto, it simply isn't a practical option for most people. Just paying bills with crypto is enough of a hassle to make crypto unviable as a salary option. And that's before you consider the volatility and tax implications.

If you like the idea of being paid in crypto, it might be a good idea to dip a proverbial toe -- rather than diving in head first. Get a small portion of your salary in a popular cryptocurrency, but avoid converting any portion of your payments you aren't prepared to lose to potential devaluation.

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