You can pay your employees with cryptocurrency, but the process will be far from simple and may be risky.
From TurboTax Tax Tips for Bitcoin and Virtual Currency:
"If you are an employer paying with Bitcoin, you must report employee earnings to the IRS on W-2 forms.
- You must convert the Bitcoin value to U.S. dollars as of the date each payment is made and keep careful records.
- Wages paid in virtual currency are subject to withholding to the same extent as dollar wages.
Employees must report their total W-2 wages in dollars, even if earned as Bitcoin.
Self-employed individuals with Bitcoin gains or losses from sales transactions also must convert the virtual currency to dollars as of the day received, and report the figures on their tax returns."
Risks of paying with cryptocurrency from Can You Pay Your Employees in Cryptocurrency?
"While some employees may want to be paid in full or partly in cryptocurrency, the simple truth is that in the U.S. it would be quite risky to do so.
The IRS considers bitcoin and other cryptocurrencies to be property, meaning not money. According to TurboTax, employers who pay wages in cryptocurrency must convert the crypto to U.S. dollars for purposes of tax reporting. This would likely be a huge hassle for most businesses.
Another hurdle is the Fair Labor Standards Act, which governs most aspects of employee rights. It states that employees must be paid in “cash or negotiable instrument payable at par.”
There is no case law on the subject yet, but for now it’s likely that the Department of Labor may not consider cryptocurrency to be the same as a fiat currency. The Labor Department could then also determine that an employer failed to pay their employees a minimum wage.
