Do I Need to Pay Crypto Self-Employment Taxes?

In the United States, if you are self-employed, you need to pay self-employment taxes, an additional 15.3% tax that includes Medicare and Social Security taxes. Most salaried workers have half of this automatically deducted from their paychecks, with the other half being paid by their employer. However, if you're self-employed and don't have these deductions and payments made for you, the IRS still wants you to report and pay these taxes in a timely manner.

This means that if your crypto activities constitute “self-employment,” you’ll need to report and pay quarterly estimated taxes, including the 15.3% self-employment tax on top of ordinary income taxes. 

According to the IRS, you’ll need to pay the 15.3% tax if your net earnings from self-employment were more than $400 in a tax year. But what constitutes “self-employment” versus a hobby? 

If your crypto activities generate income and represent a sizable portion of your total yearly earnings, and you run your operations in a business-like manner, they may be subject to self-employment taxes. Common situations this could apply to include:

• Bitcoin and crypto mining

• Creating and selling NFTs as a business

• Getting paid in crypto for goods or services (not a salary)

• Running a validator node

For more on whether your crypto activities constitute self-employment, we recommend reading the IRS’ guidance and getting in touch with a crypto tax accountant.

Note that you do not pay self-employment taxes on crypto capital gains, as these are not considered "earned" income.

The IRS wants taxes on income as soon as it’s earned. Because the self-employed don’t have federal taxes withheld from each paycheck, they must instead report and pay quarterly estimated taxes. Failing to do so can result in penalties and/or interest. 

Part of this worksheet is reporting what you expect your yearly gross income to be. This can be tricky for the self-employed, especially in the volatile crypto market. When calculating your crypto mining self-employment taxes, keep in mind the safe harbor rules and remember that overpayments will be refunded. If you’re struggling with your estimated quarterly payments, a crypto tax accountant can help. 

The IRS Form 1040ES is a tax form that will help you calculate what you owe each quarter. Once you’ve completed it, you’ll mail in your form and payment or simply pay taxes online. 

Few people enjoy paying their self-employment taxes quarterly, but there are some benefits to your crypto income being considered self-employment income. Chiefly, you will be able to take deductions for your business expenses. This is particularly important for crypto miners, who may be able to get substantial tax deductions for their electricity and equipment expenses.