IR-2024-63: Tax Time Guide: Taxpayers should report digital asset transactions, gig economy income, foreign source income and assets

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Issue Number:    IR-2024-63

Inside This Issue

Tax Time Guide: Taxpayers should report digital asset transactions, gig economy income, foreign source income and assets

WASHINGTON — The Internal Revenue Service reminds taxpayers they’re generally required to report all earned income on their tax return, including income earned from digital asset transactions, the gig economy and service industry as well as income from foreign sources.

Reporting requirements for these sources of income and others are outlined in the Instructions for Form 1040 and Form 1040-SR. The information is also available on IRS.gov.

This release is the third in a four-part series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional guidance is available in Publication 17, Your Federal Income Tax (For Individuals).

Digital assets, including cryptocurrency
A digital asset is a digital representation of value that is recorded on a cryptographically secured, distributed ledger. Common digital assets include:

• Convertible virtual currency and cryptocurrency.
• Stablecoins.
• Non-fungible tokens (NFTs).

Everyone must answer the question
Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120 and 1120S must check one box answering either "Yes" or "No" to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.

Checking “Yes”: Normally, a taxpayer must check the "Yes" box if they:

• Received digital assets as payment for property or services provided;
• Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
• Received digital assets resulting from a reward or award;
• Received new digital assets resulting from mining, staking and similar activities;
• Received digital assets resulting from a hard fork (a branching of a cryptocurrency's blockchain that splits a single cryptocurrency into two);
• Disposed of digital assets in exchange for property or services;
• Disposed of a digital asset in exchange or trade for another digital asset;
• Sold a digital asset; or
• Otherwise disposed of any other financial interest in a digital asset.

In addition to checking the "Yes" box, taxpayers must report all income related to their digital asset transactions. For example, an investor who held a digital asset as a capital asset and sold, exchanged or transferred it during 2023 must use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss on the transaction and then report it on Schedule D (Form 1040), Capital Gains and Losses. A taxpayer who disposed of any digital asset by gift may be required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

If an employee was paid with digital assets, they must report the value of the digital assets received as wages. Similarly, if they worked as an independent contractor and were paid with digital assets, they must report that income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). Schedule C is also used by anyone who sold, exchanged or transferred digital assets to customers in connection with a trade or business and who did not operate the business through an entity other than a sole proprietorship.

Checking “No”: Normally, a taxpayer who merely owned digital assets during 2022 can check the "No" box as long as they did not engage in any transactions involving digital assets during the year. They can also check the "No" box if their activities were limited to one or more of the following:

• Holding digital assets in a wallet or account;
• Transferring digital assets from one wallet or account they own or control to another wallet or account they own or control; or
• Purchasing digital assets using U.S. or other real currency, including through electronic platforms such as PayPal and Venmo.

For more information, see the list of frequently asked questions (FAQs) and other details, visit the Digital Assets page on IRS.gov.

Gig economy earnings
Typically, income earned from the gig economy is taxable and must be reported to the IRS on tax returns. Examples of gig work include providing on-demand labor, services or goods, or selling goods online. Transactions often occur through digital platforms such as an app or website.

Taxpayers are required to report all income earned from the gig economy on a tax return, even if the income is:

• From temporary, part-time or side work.
• Paid through digital assets like cryptocurrency, as well as cash, goods or property.
• Not reported on an information return form like a Form 1099-K, 1099-MISC, W-2 or other income statement.

Taxpayers can visit the gig economy tax center for more information on the gig economy.

Service industry tips
Individuals who work in service industries such as restaurants, hotels and salons often receive tips from customers for their services. Generally, tips like cash or non-cash payments are taxable and should be reported.

• All cash tips should be reported to the employer, who must include them on the employee’s Form W-2, Wage and Tax Statement. This includes direct cash tips from customer to employee, tips from one employee to another employee, electronically paid tips and other tip-sharing arrangements.
• Noncash tips include value received in any medium other than cash, such as: passes, tickets, or other goods or commodities a customer gives the employee. Noncash tips aren't reported to the employer but must be reported on a tax return.
• Any tips the employee didn't report to the employer must be reported separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to include as additional income with their tax return. The employee must also pay the employee share of Social Security and Medicare tax owed on those tips.

Service industry employees don't have to report tip amounts of less than $20 per month per employer. For larger amounts, employees must report tips to the employer by the 10th of the month following the month the tips were received.

See Tip Recordkeeping and Reporting for more information on how to report tips.

Foreign source income
Generally, A U.S. citizen or resident alien’s worldwide income is subject to U.S. income tax, regardless of their residence. They're also subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States.

U.S. citizens and resident aliens must report unearned income, such as interest, dividends and pensions, from sources outside the United States unless exempt by law or a tax treaty. They must also report earned income, such as wages and tips, from sources outside the United States.

An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are available only if an eligible taxpayer files a U.S. income tax return.

A taxpayer is allowed an automatic two-month extension to file a tax return to June 15 if both their tax home and abode are outside the United States and Puerto Rico. Even if allowed an extension, a taxpayer will have to pay interest on any tax not paid by the regular due date of April 15, 2024.

Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15. The IRS recommends attaching a statement if one of these two situations applies. More information can be found in the Instructions for Form 1040 and Form 1040-SR, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and Publication 519, U.S. Tax Guide for Aliens.

Foreign accounts and assets
Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B (Form 1040), Interest and Ordinary Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts such as bank and securities accounts and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

In addition, U.S. persons with an interest in or signature or other authority over foreign financial accounts where the aggregate value exceeded $10,000 at any time during 2023 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages U.S. persons with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is available only through the BSA E-filing System website.

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is April 15, 2024. FinCEN grants U.S. persons who miss the original deadline an automatic extension until Oct. 15, 2024, to file the FBAR. There is no need to request this extension. See FinCEN’s website for further information.

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