- Bitcoin is great for many things, but not as a way of receiving your salary
- Bitcoin’s volatility, impracticality, and the tax implications outweigh any benefits
- Hopefully over time it will become more appealing to accept a salary in bitcoin
We all love Bitcoin. It’s great for many things, from representing a shot at financial freedom to affording us another way to bore people at parties, but there is one thing you shouldn’t be using it for – your salary. While headlines about employees being given the opportunity to have their salaries paid in bitcoin are great for PR, as the past few weeks have shown, the reality of having your salary paid in bitcoin is not as utopian as it might seem, for three very good reasons.
Being paid in bitcoin is fine for those who don’t need to worry about its value potentially depreciating in short order, but that doesn’t apply to many of us. Anyone who had their April salary paid in bitcoin has watched its value depreciate by 20% so far this month. Would your mortgage provider, landlord, or other creditors have knocked a fifth off your monthly bills just because Bitcoin is down? No.
Of course, there is the chance that your salary could increase too after you get it, but do you really want to rely on which side of his palatial bed Elon Musk gets out of on any given day to see if you can pay your bills that month?
There is of course the option of selling to a stablecoin in order to retain your salary’s dollar value, but that will incur a fee, leaving you no better off than if you got paid into your bank. And what’s the point in getting paid in bitcoin just to sell it immediately?
Bitcoin is also still an impractical way of receiving your salary. If you hold a cryptocurrency debit card then you could potentially use it like regular cash to pay your bills and so forth, but each time you sell a portion you will incur capital gains tax, a transaction fee, and possibly a withdrawal fee too.
You’re better off doing things the other way round and paying your bills in your local currency and buying bitcoin with whatever is left at the end of the month.
As with regular income, tax will be levied on the dollar value of your salary, however you receive it. The moment you receive the bitcoin however it becomes a capital asset, meaning you will then be liable to pay capital gains tax on any increase in value at the time of sale. This in itself isn’t a problem given that you will have made more in terms of gains than you would pay in tax, but it is a risky play and, at the very least, means more recordkeeping.
There have also been historical cases where tax authorities have tried to charge income tax on the dollar value at the time of sale rather than at the time of receipt. This necessitates selling or at very least moving the bitcoin to another wallet as soon as possible to avoid such actions, which is another onerous (and potentially costly) task.
Getting Paid in Bitcoin Will Hopefully Become Easier
Unless you’re living in El Salvador, getting paid in bitcoin is currently an awkward, impractical, and potentially costly enterprise. It is also not something that tax authorities will not look favorably upon, leading to potential complications down the line. One thing’s for sure, they won’t make it easy for you.
For the time being then, the best approach is to either ask for your monthly salary to be split between your local currency and bitcoin into a ratio that works for you, or to buy bitcoin with your spare change at the end of the month. Things may change in time, but don’t’ hodl your breath.