Yes you can but you need to make sure you apply the right social deductions before paying out the crypto salary. The challenge with paying a salary in crypto is that governments, with the exception of El Salvador, do not view Bitcoin and other crypto currencies as a currency. It’s viewed as an asset similar to property.
This means you’re actually paying out an asset when you pay someone in crypto similar to let’s say giving them a car. It still needs to be taxed as income but you need to value the asset upon giving it to your employees and therefore deduct the necessary social charges and then provide the asset.
How does paying someone in crypto look like?
If I paid you 0.25 Bitcoins today (March 5th, 2021) for your work, I need to convert that Bitcoin into fiat currency which today is worth 9,841.20 USD. I then need to deduct the social charges from that 9,841.20. Let’s say in the U.S, I need to deduct social security, medicare, state income tax and various local tax withholding taxes which total on avg 25%.
You need to deduct 2,460.30 USD from 9,841.29 USD convert the remainder (9,841.29 - 2,460.30 = 7,380.90 USD) back into Bitcoin which would leave the employee with 0.1875 Bitcoins after deductions.
You would also need to apply deductions on the company side in order to be fully compliant.
Is there an easier way to pay someone a crypto salary?
Yes there is. You could employ someone as a contractor. This would allow you to pay the full sum in Bitcoin and not have to worry about paying all the social charges ahead of time. The employee would then be liable to file his tax return at year end reporting his income as fiat currency at the various points he was paid.
If I hire someone as a contractor, how does that person pay their taxes at year end?
The person would need to convert the bitcoin received lets say on a monthly basis back into FIAT currency when he/she received it.
For example, if you paid a contractor 0.25 Bitcoins on Feb 5th, 2022, they would report income of 10,359.40 USD for that payment. When they receive their next monthly payment, let's say on March 5th for 0.25 Bitcoins they would report 9,841.29 USD as income. This needs to be calculated each and every time a payment is made to the contractor in Bitcoin.
How can a Web 3.0 Accountant help with paying crypto salaries?
We can advise on the best way forward for both you as a company and your employees or contractors. We help calculate how much you’re paying out in crypto and also help you payout the crypto to ensure you are fully compliant.