Yes, virtual currency received by an independent contractor for performing services constitutes self-employment income.
For federal tax purposes, virtual currency is treated as property. When an independent contractor receives virtual currency as payment for services, the fair market value of the virtual currency, measured in U.S. dollars as of the date of receipt, must be included in gross income. This is consistent with the general tax principles applicable to property transactions.
According to Notice 2014-21, the fair market value of the virtual currency received for services performed as an independent contractor constitutes self-employment income and is subject to self-employment tax. This is further supported by the IRS FAQ from 2023, which states that generally, self-employment income includes all gross income derived by an individual from any trade or business carried on by the individual as other than an employee. Consequently, the fair market value of virtual currency received for services performed as an independent contractor constitutes self-employment income and is subject to the self-employment tax.
Additionally, the IRS Chief Counsel Advisory Memorandum (CCA 202035011) confirms that a taxpayer who receives convertible virtual currency in exchange for performing a microtask through a crowdsourcing platform has received consideration in exchange for performing a service, and the currency is taxable as ordinary income. This aligns with the definition of gross income under Section 61 of the Internal Revenue Code, which includes all income from whatever source derived, including compensation for services.
Therefore, virtual currency received by an independent contractor for performing services is considered self-employment income and is subject to the applicable self-employment tax.
Sources:
Notice 2014-21
Rev. Rul. 2019-24
§ 1402. Definitions
§ 61. Gross income defined
CCA 202035011
