Are crypto cashback rewards taxable?


What are crypto cashback rewards?

Cashback reward programs are popular mechanisms used by companies to reward consumer activity and loyalty, and the growth and awareness around cryptocurrencies make cryptocurrency rewards an excellent way to target savvy consumers interested in digital currencies.

Most users are familiar with successful cashback or rewards programs that offer consumers coupons or air miles to be traded for discounts, as well as fiat currency as cashback. Users typically sign up to use a credit or debit card, and depending on commercial activities performed, they get paid back either in fiat currency or points that have a monetary value and can be used within certain transactions.

There are also cashback sites where users can register their cards, and any purchases from groceries to electronics to insurance and holidays via those sites will help users accumulate cashback rewards. 

Cryptocurrency cashback programs have been targeted at the growing niche of savvy digital natives who are familiar with cryptocurrencies and are comfortable earning any rewards in their favorite digital currencies. 

Since many of these programs are new, they generally tend to have generous rewards for their users in comparison with traditional cash back arrangements to increase adoption. Users should research the programs that offer sign-on bonuses and referral bonuses to best optimize their earnings from participation in such programs.

From traditional and large established corporations to new fintech business models and e-commerce sites, a growing segment is geared toward promoting cryptocurrency cash rewards. 

Cashback programs are typically structured around various business models, such as offering flat rate rewards based on minimum requirements or percentage-based rewards — e.g., 3% for dining and 1% for all other purchases. Some programs have tiered rewards based on spending or account holdings. Additionally, some require a subscription, necessitating a monthly fee or deposit for access.

Venmo, a PayPal company, offers credit cards with a cashback-to-cryptocurrency service where users can set their cashback rewards to be used to purchase cryptocurrencies of their choice.

Paystand, a company focused on business-to-business payments, has also made forays by offering corporate expense cards that reward users via cryptocurrencies. has a long-standing program with built-in rewards based on user activity and holdings on its centralized exchange. Other known card offerings with a cashback feature include those from Gemini, Coinbase and Wirex, and depending on their business model, these cards are either offered as a debit or a credit card. cashback rewards

Club Swan offers a lifestyle and payments platform where membership includes concierge services and rewards for purchases using their cards. Users need to check which providers are willing to offer these programs within their jurisdictions, as some of them are restricted to certain geographies.

Users also have access to sites and apps that operate cryptocurrency cashback models. StormX and CoinCorner are examples of such sites or apps that allow users to shop at various retailers, from lifestyle, fitness and homewares to travel and flights, and reward them with cashback via cryptocurrencies.

StormX cashback rewards

Users need to be careful about some of the fees and minimum requirements to participate in cashback programs; they should make these choices after conducting due diligence and comparing options to ensure that the outcomes are economical and prudent for their finances.

Offbeat cryptocurrency rewards programs

It is also worth considering some niche offbeat rewards programs that encourage social, gaming or fitness activities and reward users with cryptocurrencies accordingly.

Move-to-earn programs encourage users to earn cryptocurrencies for activities like walking, running and other similar fitness pursuits. Examples include StepN and Sweatcoin, where users, based on the enrollment options, have an app that tracks user activities and rewards them with their native tokens. 

Play-to-earn (P2E) is another popular segment with games like Axie Infinity, and its fundamental premise continues to endure. For users who enjoy playing online or mobile games, P2E provides an opportunity to be rewarded for their hobbies and interests via cryptocurrency rewards.

Tax implications of crypto cashback rewards

Cryptocurrency cashback triggers a variety of financial and tax reporting considerations for users. 

Cryptocurrency cash back rewards open up new opportunities for users; however, there are tax consequences to receiving cryptocurrency rewards, and users must ensure that they follow the tax reporting laws of their jurisdictions. 

Cryptocurrency rewards add a level of reporting and tax compliance for users, and depending on the complexity of their arrangements, they might need professional finance and tax help.

Users must review the following key areas:

Capital gains

Cryptocurrency received as rewards may increase in value over time, so when users eventually decide to sell to obtain fiat currency or exchange it for another cryptocurrency, they may incur capital gains tax. The tax owed can be a complex calculation and depends on various factors, such as the jurisdiction’s tax laws and the duration of the hold.

Cryptocurrency volatility

When users receive cryptocurrency cashback rewards, these are typically considered income under most tax laws. The primary risk involves cryptocurrency volatility: The reward’s value is based on the market value at receipt. If the value decreases over time, users are still liable for taxes based on the initial receipt value.

Considerations before opting for crypto cashback rewards

Though cryptocurrency cashback rewards could be appealing to users, they must exercise caution and consider the pros and cons before opting for any such rewards. 

There is a higher overhead in terms of compliance and reporting on their individual tax affairs, so they must weigh the benefits against these costs.

Tax implications

Tax laws across jurisdictions can be quite complex. The Internal Revenue Service in the United States may not provide direct guidance on crypto cashback rewards, but there is substantial guidance on the general treatment of cryptocurrencies. Such rewards are considered taxable income, focusing on the fair market value on the day of receipt and capital gains requirements upon disposal.

Users would benefit from accurate record-keeping to track cashback rewards and transactions, which would help them with accurate tax reporting and compliance. As crypto taxation is a fast-changing field, users must stay on top of any guidance changes or tax laws and appropriately consult with financial or tax advisors according to their unique circumstances.

Conversion to fiat and off-ramp

Depending on the options available within the rewards program, it can sometimes be expensive for users to convert their cryptocurrency earnings into fiat currencies.

Wallet security

For users who store their cryptocurrency rewards in their private wallets, they need to follow adequate operational security measures to protect against hacks, social engineering or malware.

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