Crypto Tax Rates: Complete Breakdown by Income Level 2023

Wondering how much you’ll need to pay in cryptocurrency taxes? Let’s break down how much money you’ll owe to the IRS in different scenarios. 

What is the cryptocurrency tax rate? 

Depending on your specific circumstances, cryptocurrency can be taxed as long-term capital gains, short-term capital gains, or ordinary income. 

Ordinary income tax: If you earn cryptocurrency — whether through your job, mining, staking, or airdrops — you’ll recognize ordinary income subject to income tax. This can range from 10% - 37% depending on your income level. 

Meanwhile, cryptocurrency disposals are subject to capital gains tax. Examples of disposals include selling crypto, trading your crypto for other cryptocurrencies, or making a purchase with crypto. 

Long-term capital gains tax: If you’ve held cryptocurrency for more than a year, your disposals will be subject to long-term capital gains tax. This ranges from 0%-20% depending on your income level. 

‍Short-term capital gains tax: If you’ve held your cryptocurrency for less than a year, your disposals will be subject to short-term capital gains tax. For tax purposes, this is treated the same as ordinary income and can range from 10% - 37% depending on your income level.

How much tax do I pay on my crypto capital gains? 

The tax rate you pay on cryptocurrency varies depending on several factors, including your income level and how long you held your crypto.

Long-term capital gains tax rate

If you disposed of your cryptocurrency after more than 12 months of holding, you’ll be taxed at the long-term capital gains rate. Here’s a breakdown of tax rates by income level.  

Short-term capital gains/ordinary income tax rate 

If you’ve disposed of cryptocurrency after less than 12 months of holding OR earned cryptocurrency income, you’ll need to pay ordinary income tax. Here’s a breakdown of tax rates by income level. 

Not sure how much you’ll be paying in crypto taxes? Check out our free crypto tax calculator.  

How do crypto tax brackets work? 

It’s important to remember that most taxpayers don’t pay a single flat tax rate on their entire income. Instead, they pay progressively higher tax rates on different portions of income. 

For example, a taxpayer who earned $25,000 of income won’t pay a flat 12% tax. Instead, they’ll pay 10% on the first $10,275 and 12% on the next $14,725.

Capital gains vs. income tax events 

Not sure whether your crypto transactions should count as a capital gain or income tax event? Let’s run through a few common scenarios. 

When do I pay capital gains tax on crypto?

‍Trading your cryptocurrency for fiat. 

Trading your cryptocurrency for other cryptocurrency. 

Using cryptocurrency to buy goods and services. 

When do I pay income tax on crypto?

Below includes a list of income events common for crypto users.

• Receiving cryptocurrency as a referral bonus.
• Receiving cryptocurrency in an airdrop. 
• Earning cryptocurrency interest. 
• Receiving a paycheck in cryptocurrency. 
• Earning cryptocurrency from staking and/or mining.

Do I have to pay net investment income tax (NIIT)? 

Some highly-successful crypto investors are required to pay an additional 3.8% tax on their net investment income. 

Net investment income is the total amount you’ve earned from all your investments — including income from bonds, stocks, mutual funds and crypto. Your net investment income is calculated by adding together capital gains, interest and dividends, and any income from your cryptocurrency investments. 

It’s important to note that the vast majority of crypto investors will likely not be required to pay NIIT. The tax only applies if you’ve reached the following thresholds of net investment income.

Can I reduce my income and get to a lower tax bracket? 

Itemized deductions can reduce your tax bill for the year. 

If you have $40,000 of income for the year and claim $16,000 worth of itemized deductions, your taxable income will fall to $24,000. In some cases, deductions can reduce your taxable income to the point where you may fall into a lower marginal tax bracket. 

Examples of itemized deductions include amounts paid for cryptocurrency donations, mortgage interest, and state/local tax paid. 

Remember, itemized deductions will only reduce your tax bill if their sum is greater than the standard deduction available to you. 
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