If I decide to use Bitwage as a individual US person, and my employer sends funds to the Bitwage US Bank account – and I then decide to either save or withdraw in bitcoin – does Bitwage report this activity to the IRS and send me a 1099-K? Or does Bitwage not report bitcoin-related activity, leaving it to the individual to address any tax implications that may arise?
Please note that we are not CPAs and you should consultant an accountant for tax related issues. If you are a US citizen or working in the US, your company is required to file the 1099. Otherwise, you should fill out at W8-BEN so that the company can prove that you are neither a US Citizen nor working in the US in the case of an IRS audit.
Something I saw here was the following (quoted in part, as it is relevant to this
“The AICPA recommends that Bitcoin deposit accounts be reported in the summary information in Part I of Form 8938. Specific information should be given in Part V.
However, online wallets do not need to be reported for FATCA purposes.
Because Form 8938 is attached to the taxpayer’s return, persons who
are not required to file a return need not file Form 8938.”
From this I gather that bitcoin wallet technologies are not reportable in the context of
FATCA, although the IRS does consider bitcoin as property and has other guidelines.
However, central to
my question for Bitwage, is what does Bitwage report? I will break this down into
four followup questions, please answer each:
When an external employer sends funds in US dollars to a Bitwage US bank account, does Bitwage report any of that activity to the IRS? (Yes / No)
When an individual user of Bitwage (who is a U.S. user, whose external employer (or whose customer the individual user of Bitwage sends an invoice for services) pays the individual Bitwage user in U.S. dollars,) opts to distribute to save or withdraw in bitcoin, does Bitwage report any of that activity to the IRS?
(Yes / No)
Is Bitwage considered to be a TPSO by the IRS? According to the IRS, as quoted
from its Notice 2014-21 – ‘how existing general tax principles apply to transactions using virtual currency,’ regarding the question Q-15: Are there IRS information reporting requirements for a person who settles payments made in virtual currency on behalf of merchants that accept virtual currency from their customers? – this would seem to be referring to payment processors; the IRS’s answer to Question 15 in that Notice is: “a third party that contracts with a substantial number of unrelated merchants to settle payments between the merchants and their customers is a third party settlement organization (TPSO). A TPSO is required to report payments made to a merchant on a Form 1099-K, Payment Card and Third Party Network Transactions, if, for the calendar year, both (1) the number of transactions settled for the merchant exceeds 200, and (2) the gross amount of payments made to the merchant exceeds $20,000.” An example of a TPSO that sends 1099-Ks to the IRS (reports people’s bitcoin activity to the IRS) is Coinbase (they have a blog post on the subject).
Please answer the following question only if Bitwage is a TPSO. If Bitwage is considered to be a TPSO by the IRS, does Bitwage have a means for individual users to track when they are approaching the 200 transaction / $20,000 gross payment amount threshold, so that
individual user(s) can decide if they wish to continue accepting payments / completing transactions beyond that threshold via Bitwage? (Yes / No)
Note: If Bitwage is a TPSO, I do not think this would be an issue for most people because the number of transactions would likely not exceed 200 settled in a year for
most persons who use Bitwage services. However, for some persons, it would, and thus question (4) is important.
Edit: The questions posed above are now mostly answered here.