Is crypto received from hobby mining "earned" or "unearned" income?

[LUKE D]

My teenage child has been mining crypto overnight when he's not otherwise using his computer, approximately $1500 worth in 2021. We file separately for them with the form 8615. I've added the crypto mining as hobby income via Schedule 1, line 8. Does the IRS currently consider such mined crypto as "earned" or "unearned" for the purposes of the 8615. If it's "earned" can he contribute to a Roth IRA?

[ErnieS0]

It depends upon intent.  It is not earned income if  it is a hobby so it would not qualify as earned income for purposes of an IRA.

You would have to file it as self-employment income. However, it doesn't seem like someone who makes $1,500 by leaving their computer on overnight is running a business.

The IRS says:

If a taxpayer’s “mining” of virtual currency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute self-employment income and are subject to the self-employment tax.

See Q-9 on Notice 2014-21  

[LUKE D]

Right, I'm not filling out a Schedule C, I'm just trying to understand if the Schedule 1 amount contributes to earned or unearned income with respect to the 8615.

Luke

[ColeenD3 · Accepted solution]

If it is not a business, it is unearned income. If it is a business, it is earned income. Hobby income would include a Form 8615 and no IRA contribution.