Mining, Compensation, and Other Earned Digital Assets

Receiving crypto can create taxable income before there is an investment gain.

The same token can move from earned income into an investment asset.

Income first, gain later

If a taxpayer performs services and receives crypto worth $5,000, that value can be income.

If $5,000 is properly included in income, it generally establishes $5,000 basis.

A later sale for $7,000 can then produce $2,000 of later gain, assuming capital-asset treatment.

Employee compensation

Crypto paid to an employee can enter the wage and employment-tax framework.

The fair market value properly included in wages generally establishes basis in the received asset.

A later sale is separate.

Independent contractors

A contractor paid $10,000 of ETH for services generally analyzes the $10,000 as service income when received under the applicable rules.

Keeping the ETH instead of cashing out does not ordinarily postpone the compensation question until sale.

If the activity is a trade or business, self-employment tax can also become relevant.

Do not say all crypto income is self-employment income. The reason the taxpayer received it matters.

Mining

IRS guidance has long treated cryptocurrency received from mining as gross income measured by fair market value when received under the applicable control principles.

Where mining constitutes a trade or business and is not performed as an employee, self-employment tax can also become relevant.

This page is not a guide to mining-rig depreciation, electricity deductions, home-office deductions, entity selection, equipment capitalization, or business accounting methods.

Those are business-tax questions.

Referral and promotional earnings

Platforms may distribute tokens for referrals, completing tasks, learning modules, or participation incentives.

Ask what the taxpayer did to receive the property.

“Learn-to-earn,” “engagement reward,” or “bonus token” are product labels, not separate tax categories.

Mining versus staking

Mining and staking can both produce newly received assets, but the authorities are not interchangeable.

Mining has longstanding IRS treatment under Notice 2014-21.

Native proof-of-stake rewards have modern authority including Rev. Rul. 2023-14 and Paschall v. Commissioner.

Both can produce income before sale, but their mechanisms remain distinct.

Basis bridges into investment tax

Once property is properly included in income, that income amount can establish basis.

Later questions become:

• Which units were sold?
• What was adjusted basis?
• How long were they held?
• What were proceeds?
• Was later gain or loss capital?

Restricted tokens

Tokens received for services can be locked, vesting, nontransferable, or forfeitable.

Those facts can implicate §83.

Tokenized corporate stock, options, or other equity interests belong in the Equity Compensation framework. Calling an instrument a token does not turn stock compensation into ordinary cryptocurrency compensation.

Records

Preserve receipt date, quantity, fair market value included in income, wallet/account, income-reporting records, later transfers, lot identification, and sale records.