Should crypto income with form 1099-MISC go into Schedule B or not? Turbo tax doesn't know how to handle this income

[ColeenD3]

1) Log in and go to Income & Expenses (tab at top).

2) In Your Income and expenses, scroll to Less Common Income.

3) Click Show more, scroll down, and click Start next to Miscellaneous Income.

4) On the next page, scroll down and click Start next to Other reportable income.

5) On the Any Other Taxable Income page, click Yes.

6) Make your entries on the Other Taxable Income page. You will aggregate all your airdrops/promo/staking income and put them in the first box.

[widestrides]

Thanks, but this does not allow me to report my 1099-MISC income from staking. 

It clearly says: "Do not enter income reported on Form 1099-MISC.

The IRS will be looking for my 1099-MISC. But when I report my 1099-MISC on TurboTax under "Income from Form 1099-MISC," it forces it into Self-Employment and adds 15.3% Self-Employment tax on top of the regular Income tax. 

When I click on the question, "What is I got my 1099-MISC for something other than a job?" it says, "You might have gotten your 1099-MISC for prize money, a lawsuit settlement or another reason that wasn't work-related. In that case, simply type in the reason (like "prize money" or "lawsuit settlement"). But if I type in Crypto Staking Rewards or Crypto Interest Income, it forces it to Self Employment and adds 15.3% Self-Employment tax on top of the regular Income tax.

This is clearly a glitch in the TurboTax system. There is no way to report a 1099-MISC without it being force into Self Employment and adding 15.3% Self Employment Tax unless it is one of those "uncommon situations" like "I owned a farm," "prize winnings," "lawsuit settlement," etc. TurboTax needs to add one for "Crypto Staking Rewards and Crypto Interest Income reported on a 1099-MISC." I checked "Prize Winnings and Awards" because this income is called "Staking Rewards." I'll just have to explain that to the IRS if they ask.

So, my path was: 

Wages and Income > Miscellaneous Income > Other reportable income > Start > Other Taxable income.

[Vanessa A]

Crypto mining is considered a trade or business by the IRS therefore those earnings are subject to self-employment tax.  However, the IRS has not issued clear guidance on staking rewards.  All in all, there are different types of staking, if you putting any work into the staking, then it should be reported as Self-Employment income.  If you basically, made a deposit into an account and are letting it earned interest then it would be reported as other income.

Crypto Mining tax treatment

(Edited 2/21/2022 @ 12:24PM PST) @widestrides 

[widestrides · Accepted solution]

Thanks.

Mining may be considered a trade or business, because it obviously involves some work and expenses and equipment, but not staking, which is just passive income, like earning interest at a bank.

Staking was not addressed anywhere in that link you sent me. 

Given that all of your experts are giving me mixed signals in this thread, I do not think this issue is settled.

I will research it further with the IRS and see if other tax software does the same as TurboTax. I'm going to put it in as Prize Winnings and may just have to have a Chat with the IRS if necessary. 

Most folks who stake do not receive a 1099-MISC, and not just because they earned less than $600. That's millions or maybe tens of millions of dollars being filed as ordinary income, not self-employment income with the added 15.3% self-employment tax.

[ColeenD3]

Please see this from a TurboTax Help article.

How do I report a crypto airdrop?

Cryptocurrency airdrops are (usually) free distributions of coins or tokens into multiple wallet addresses to promote and drive the adoption of a new virtual currency.

Recently, the IRS ruled that airdrops, along with promos and staking rewards, only become taxable once the taxpayer "acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency." Airdropped currency that's not yet usable or accessible would therefore not be taxable until the taxpayer can exercise control over it.

Step 1 - Convert to USD

Step 2 - Enter in TurboTax

Once you have the USD values, here's how to enter them into TurboTax:

1. With your return open, go to Federal then Wages & Income
2. Open the Less Common Income section and select Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C
3. On the next screen, select Start or Revisit the very last entry, Other Reportable Income
4. Answer Yes on the Any Other Taxable Income? screen
5. On the next screen, enter a description (for example, "crypto airdrop") and then enter the total USD amount
6. Select Continue when finished.

Crypto staking

[widestrides]

Thanks, Colleen, but my Reply to your earlier message three hours ago still holds true.

Thanks, but this does not allow me to report my 1099-MISC income from staking. 

It clearly says: "Do not enter income reported on Form 1099-MISC.

The IRS will be looking for my 1099-MISC. But when I report my 1099-MISC on TurboTax under "Income from Form 1099-MISC," it forces it into Self-Employment and adds 15.3% Self-Employment tax on top of the regular Income tax. 

When I click on the question, "What is I got my 1099-MISC for something other than a job?" it says, "You might have gotten your 1099-MISC for prize money, a lawsuit settlement or another reason that wasn't work-related. In that case, simply type in the reason (like "prize money" or "lawsuit settlement"). But if I type in Crypto Staking Rewards or Crypto Interest Income, it forces it to Self Employment and adds 15.3% Self-Employment tax on top of the regular Income tax.

This is clearly a glitch in the TurboTax system. There is no way to report a 1099-MISC without it being force into Self Employment and adding 15.3% Self Employment Tax unless it is one of those "uncommon situations" like "I owned a farm," "prize winnings," "lawsuit settlement," etc. TurboTax needs to add one for "Crypto Staking Rewards and Crypto Interest Income reported on a 1099-MISC." I checked "Prize Winnings and Awards" because this income is called "Staking Rewards." I'll just have to explain that to the IRS if they ask.

.

[DawnC]

Change a couple of answers to your questions in that 1099 entry, and you can get the income to show as Other Income, not Self-Employment.    Delete that 1099 you started and re-enter it following these steps and the income will go to Line 8 (not SE).    @widestrides

To enter other reportable income, on a 1099-MISC form, follow these steps:

1. Sign into your TurboTax account.

2. Select Federal from the left side menu.

3. Type 1099-Misc in the search bar and click on Jump to 1099-misc.

4. On the Did you get a 1099-MISC? screen, select Yes.  If you come to the 1099-MISC Summary screen, select +Add Another 1099-MISC located under the Total.

5. On the Let’s get the info from your 1099-MISC screen, enter the information on the form and Continue.  ($ should be in Box 3)

6. On the Describe the reason for this 1099-MISC screen, enter a description (crypto staking).

7. On the Does one of these uncommon situations apply?  select any option and continue with the onscreen interview until complete. 

8. If you select None of these apply, you have a few more questions to enter.   Keep going.

9. On the Did the XXX involve work that’s like your main job? screen, select No, it didn’t involve work like my main job.  If it’s like your main job, this may be self-employment income. 

10. On the How often did you get income for XXX? screen, select I got it in 2021.  Note: If you have done this work in the past and plan on doing this in the future, this may be self-employment income. 

11. On the Did the XXX involve an intent to earn money? screen, select No, it didn’t involve an intent to earn money and Continue.  Note: An intent to earn means obtain (money) in return for labor or services with the intent on making a profit.

Normally, you do not get a 1099-MISC for these.   Had you not received the form and needed to report the staking income, you would need to use Coleen's step above to get it reported.   And since most of these transactions are not on a 1099,  the default instructions are to enter the income through Other Reportable Income which is a non-1099 entry.    But since you do have a 1099-MISC, you should enter it in Other 1099-MISC income.   The income ends up in the same place on your tax return.  

[widestrides]

You said, "On the Does one of these uncommon situations apply?  select any option and continue with the onscreen interview until complete."

Thanks! That is what I did! I checked "Prize Winnings and Awards" because this income is called "Staking Rewards." Close enough.

Is it okay to do that?

I'll guess I'll just have to explain that to the IRS if they ask, because it is certainly not Self Employment.

Why doesn't TurboTax fix this?

Thanks!

[DawnC]

Yes, that is fine to choose Prize Income as the category.   Selecting Prize Winnings will put the income on Line 8 as well.    If you did not have the Form 1099-MISC and received a staking award, you could use Coleen's steps above to get the income in the same place - not self-employment.   However, since you have the 1099-MISC, which is rare, there are some extra steps you have to take to get the income reported properly.    How you enter the income depends on the Form your received and the FAQ is geared towards staking awards and airdrops NOT being reported on a Form 1099.    @widestrides

[widestrides]

Will the IRS see my 1099-MISC as Prize Winnings? Or is that just under the hood on TurboTax? I don't want them to think this was from gambling or lotteries.

[RaifH]

Yes, it will be reported as Prizes and Winnings on Line 8h of Schedule 1. There is a separate line for gambling winnings, Line 8b of Schedule 1. The prizes and winnings line is the best fit for cryptocurrency rewards. If you want to preview your Schedule 1 to make sure it looks as it should:

1. Open or continue your return.
2. Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
3. With the Tax Tools menu open, you can then view your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu
4. Scroll down until you see Schedule 1. Line 8h should have your staking rewards. 

@widestrides 

[efiler123]

Rewards earned as for of the "Earn or Yield" programs at any of the crypto companies have issued a 1099-MISC for 2021. This is like interest and passive income. As someone has stated above, Turbo Tax forces this 1099-MISC into self-employment when it is clearly not the case. 

Prize money or rewards seem an obvious choice since it is a coin reward for staking - the staking is managed by the companies themselves and the coin holder is merely depositing the coins and watch it earn passively.

TurboTax should fix this to make it easier to handle.

[JamesG1]

Follow the steps below to report the coin reward for staking not reported as self-employment income.   

• Select Federal from the left side menu.
• Click on Wages & Income.
• Scroll down to Less Common Income.  Click Show more.
• Click Start / Revisit to the right of Miscellaneous income….
• Click Start / Revisit to the right of Other reportable income.
• At the screen Other Taxable Income enter ‘Staking reward’.  

View the entries at Tax Tools / Print Center / Print, save or preview this year's return / Include government and TurboTax worksheets.

[Pebbles2]

I wouldn't say it's "rare" to get a 1099-misc for staking.  I've received them from various platforms, for far less than $600.  It sure looks like "Widestrides" has a better grasp of the situation than many of the "expert" replies, and agree that TT needs to address this issue.

[RandomDude34345]

on 6 i was not getting this question "No, it didn't involve an intent to earn money." To get around it you need to select that you only earned this income this year. Otherwise Turbotax assumes it's business, which it's not really.