Receiving a 1099 Misc for Crypto interest and/or staking rewards involve an intent to earn money?

[JamesG1]

Some crypto exchanges (Coinbase) are using IRS form 1099-Misc to report traders’ gross income from crypto rewards or staking.

Is this what you are referring to?  Please clarify.

This amount is typically reported in Box 3 of Form 1099-MISC, as other income and not reported as self-employment income.

In TurboTax online, the income would be reported under Federal / Wages & Income / Your Income / Less Common Income / Miscellaneous Income, 1099-A, 1099-C.

[sims6851]

Yes I am referring to the 1099 Misc.  I think you answered the question concerning whether a self employment tax should be applied or not.  Thanks

[taylor59]

I'm in the same situation. Received a 1099-MISC from an exchange for crypto staking rewards.

Under  Federal / Wages & Income / Your Income / Less Common Income / Miscellaneous Income, 1099-A, 1099-C, it specifically says to only enter amounts not reported on form 1099.

So, just clarifying that this is the correct place to enter the 1099-MISC staking rewards income, even though TurboTax online specifically says not to enter it here. If I enter it under the 1099-MISC section, it treats it as self-employment income subject to self-employment tax. Maybe the application flow needs to be updated to make entering staking rewards more straightforward. Thanks!

[RobertB4444]

@taylor59  No, don't enter it there.  You can enter it directly into the area for a 1099-MISC.  But there are three important points to consider.

1.  It's going to ask you - after you have input the amount into box 3 of the 1099-MISC worksheet - whether this work was similar to your main job.  You have to be able to answer no.

2.  It's going to ask you if this work involved an intent to earn money.  If the staking is a hobby whose side effect is that money is earned then that is ok.  If the only reason that you did this was to earn money then you end up in self-employment land again.

3.  It's going to ask how often you anticipate receiving this payment.  If it's once or twice, you're good.  If it's regularly you're back to self-employment income.   

[taylor59]

Thanks for the response, but now I'm getting conflicting advice from two different Employee Tax Experts. Based on my research, I don't believe crypto staking rewards should trigger self-employment tax, even though the intent is to earn money and the staking rewards are regular. It's similar to depositing money in an interest bearing account - the intent is to earn money through regular interest payments but it's not self-employment income. Other staking rewards I've received were not reported on a 1099-MISC, and I just entered them as "Other Income." However, these staking rewards are reported on a 1099-MISC (in box 3, Other income). I need to know how to enter these into TurboTax without triggering self-employment.

[AmyC]

Staking actually has multiple definitions and which one chooses the path. Staking can be a part of the blockchain and verification, this is either hobby or self-employment income. The IRS has been very clear on the first part. However, the IRS is still muddy on the second definition. Staking can also be like bank interest, more of a passive activity, allowing others to use your coin - which is currently not believed to be self-employment, just income.

Thanks to your clarification, the easiest thing to do is what @JamesG1 suggested. Follow these steps:

1. go to the federal income section
2. scroll to the bottom
3. Miscellaneous Income, 1099-A, 1099-C, Start
4. Scroll to the bottom
5. Other reportable income, Start
6. Other taxable income?
7. Select YES
8. Description 1099-MISC box 3
9. Amount, enter your amount
10. continue

[fjleontax]

there's just too much ambiguity. yes, this is literally "bank interest", only that there's no "bank", there's an exchange instead, and that there's no USD, rather there are crypto tokens (which in my case is USDC which can usually be traded 1:1 to USD)

staking programs almost all of them pay weekly instead of 1 a year like it was some sort of prize money.

going with the bank example, do you have an intent to make money if you deposit  your money in a savings account? hell yes you do, otherwise you wouldn't deposit it there. does that mean you are self employed? no

turbotax (and the IRS) clearly need to improve here

[sims6851]

Agree.  Would like clarification.  Do I answer yes to the self employment questions or not.  Thanks

[JamesG1]

The IRS has ruled that staking rewards become taxable once the taxpayer "acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency." 

You will need to convert your staking rewards to US dollars if they have not been issued as U.S. dollars. 

Here is how to enter your staking rewards in TurboTax as other income:

• Down the left side of the screen, click Federal.
• Down the left side of the screen, click Wages & Income.
• Click Show more to the right of Less Common Income.
• To the right of Miscellaneous Income, 1099-A, 1099-C, click the Start / Revisit button.
• To the right of Other reportable income, click the Start / Revisit button.
• At the screen Other Taxable Income, enter a description such as “Cryptocurrency rewards” and an amount. 

The entries will be reported:

• on line 8z of Schedule 1 of the Federal 1040 tax return, and 
• on line 8 of the Federal 1040 tax return.

@fjleontax 

[Basht]

JamesG1, the OP specifically indicated he had received a 1099-MISC from the entity that awarded him the Staking Rewards. As such, I would think that he has to report that income within the scope of 1099-MISC, rather than re-categorize it elsewhere. Are you suggesting otherwise?

[KrisD15]

The main objective is to report this income properly on your tax return. 

Several different option are available for entering the information in TurboTax in order to get it in the right spot on your Federal Tax Return. 

For "Staking Rewards" I suggest you enter the 1099-MISC in the "Income from Form 1099-MISC" under the OTHER COMMON INCOME section

Select "This was a manufacturer's incentive payment" on the "DOES ONE OF THESE UNCOMMON SITUATIONS APPLY" since I believe this type of payment would fit that definition.  

Continue the interview. 

The income is NOT Self-Employment. 

The income is NOT considered interest by the IRS because the IRS considers Crypto as property. 

Be sure to record the value of this property so that you can properly report the sale of the crypto when that happens. 

@sims6851 

[sbipin81]

Why does Other Income 1099 - MISC  when added manually ends up under Self Employment?  Is there a bug in the software?

[PattiF]

No, there is not a bug in the software. Form 1099-MISC is frequently used for business income but that does not apply to your situation.

Here is how to enter this so that it does not end up as self-employment.

1. With your return open, select Federal from the left side navigation.
2. On the top tabs, select Wages & Income
3. Scroll down to Less Common Income section and select Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C
4. On the next screen, select Start or Revisit next to Other Reportable Income
5. Answer Yes on the Any Other Taxable Income? screen
6. On the next screen, enter a description and enter the total US dollar amount
7. Continue with the onscreen interview until complete. 

@sbipin81