Getting paid in crypto: how salaries and freelance payments in crypto are taxed in the US, UK and Canada

More employers, clients and platforms now offer to pay in crypto: part of a salary in bitcoin, a freelance invoice settled in USDC, a bonus in a company’s own token. It can sound like a way around the usual tax rules. It isn’t. The tax authorities in all three countries we cover treat crypto received for work as income, valued in your own currency at the moment you receive it.

This guide explains what that means in the US, the UK and Canada, with an example, and the records you need.

The rule that applies everywhere

The details differ, but the logic is the same in all three countries:

1. When you’re paid, the value of the crypto in dollars or pounds at that moment is income: salary or business income.
2. That value becomes your cost (basis) in those tokens.
3. When you later sell, swap or spend them, any change in value since you received them is a capital gain or loss, taxed separately.

Example

You invoice a client for $2,000 and they pay you in bitcoin worth exactly $2,000 when it lands in your wallet. That’s $2,000 of income.

• Three months later you sell the bitcoin for $2,600: you have a separate $600 capital gain.
• If instead you sell for $1,500, you still had $2,000 of income, and you now have a $500 capital loss.

That second case catches people out: you can owe income tax on value you no longer have. If you’re paid in a volatile asset, consider setting aside enough to cover the tax, in regular money.

United States

The IRS treats digital assets as property, and its FAQs address both employees and contractors directly.

Employees

The IRS says that the form in which you’re paid doesn’t change whether something is wages. The fair market value of digital assets paid as wages, measured in US dollars at the date of receipt, is subject to federal income tax withholding, Social Security and Medicare (FICA) and federal unemployment (FUTA) tax, and must be reported on Form W-2. In practice, the crypto portion of your pay should appear on your W-2 like the rest of your salary.

Freelancers and independent contractors

If you’re paid in crypto for services as an independent contractor, the IRS says the fair market value in US dollars on the date you receive it is self-employment income, subject to self-employment tax. You report it with the rest of your business income.

Your basis and the later sale

According to the IRS, your basis in the crypto you received is its fair market value when you received it, as long as you included that value in income. Selling it later is a separate transaction. See US crypto tax for how capital gains work.

Receiving digital assets as payment also means answering “Yes” to the digital asset question on Form 1040.

An illustration: when the price falls after payday

These figures are made up. A freelancer is paid 0.01 BTC for a job when it’s worth $1,000:

1. The $1,000 is self-employment income, taxed even if the coins later fall in value.
2. That $1,000 becomes the basis of the 0.01 BTC.
3. Months later they sell the 0.01 BTC for $700: a $300 capital loss.

The loss doesn’t cancel the income. Capital losses first offset capital gains, and only up to $3,000 a year of any excess can reduce other income. So being paid in a falling asset can leave you owing tax on more than you ended up with. Setting aside part of each payment in dollars for tax avoids that squeeze.

If your business accepts crypto

If customers pay you in crypto, the same IRS principle applies: the value you receive is income, recorded at its dollar value when received, and that value becomes your basis in the crypto. Keep a record of each payment, its dollar value and the invoice it relates to. See spending crypto and tax.

United Kingdom

HMRC’s Cryptoassets Manual says crypto received from employment is “money’s worth”, so it’s subject to Income Tax and National Insurance on its value.

Employees: PAYE when the tokens are “readily convertible”

The key test is whether the tokens are readily convertible assets: whether trading arrangements exist for them. HMRC’s view is that tokens like bitcoin, which can be exchanged for money on exchanges, meet that test when you receive them. Then:

• Your employer must operate PAYE, paying Income Tax and National Insurance on its best estimate of the tokens’ value.
• HMRC still says it’s your responsibility to check that the right tax is paid.

If the tokens are not readily convertible, HMRC says to ask your employer whether the tax went through PAYE. If it didn’t, you’ll need to pay it yourself through Self Assessment, in pounds sterling.

Self-employed and businesses

HMRC taxes crypto based on what the holder is doing. If you run a trade and accept exchange tokens from customers, the tokens received must be accounted for within your taxable trading profits, like any other sales.

The later sale

When you sell tokens you’ve already paid Income Tax on, HMRC says to calculate Capital Gains Tax as normal on any increase in value since you received them. See UK crypto tax.

Canada

The CRA’s crypto guidance treats paying with crypto as a barter transaction: an exchange of goods or services without government-issued currency.

Businesses and freelancers

If you sell goods or services and accept crypto, the CRA says you must include in your income the value of the goods or services you provided, or the value of the crypto you accepted, whichever is more readily valued. For a freelancer, that’s business income in Canadian dollars.

Employees

The CRA’s crypto pages don’t have a separate section on salaries paid in crypto, and we haven’t found a specific CRA rule for it. If part of your pay comes in crypto, ask your employer how it’s reported on your T4, and check with the CRA or a tax professional before you file.

The later sale

When you later dispose of the crypto, you work out your gain or loss using its cost to you, which is averaged with other identical units as your adjusted cost base. Half of a capital gain is taxable. See Canada crypto tax.

GST/HST if you sell in crypto

Canadian businesses also need to think about sales tax. The CRA says that when you exchange a taxable good or service for crypto, you calculate GST/HST on the good or service based on the fair market value of the crypto at the time, and keep a record of how you valued it. Selling widely used crypto itself, such as bitcoin or ether, which the CRA calls virtual payment instruments, is an exempt financial service, so no GST/HST applies to that sale.

Records to keep

HMRC’s own list is a good checklist for anyone, wherever you pay tax:

• The type of token and the date you received it.
• How many tokens you received, and how many you hold in total.
• Their value in your currency at the time, and the price source you used.
• Bank statements and records of any later sale or swap.

Keep the invoice or payslip that shows what the payment was for. It helps prove the value and the nature of the income if you’re ever asked.

Before you agree to be paid in crypto

1. Ask how it will be taxed and reported: on your payslip and W-2 or T4, or by you as business income.
2. Plan for the tax in regular money. You can owe tax on a value that has since fallen.
3. Use a wallet you control, and protect it properly. See hot vs cold wallets.
4. Know your cash needs. Rent and bills are in dollars or pounds, and converting crypto costs fees. See exchange fees explained.

Being paid in crypto can make sense for some people, but it adds paperwork and price risk on top of the income itself.