Startups in the Web3 and decentralized finance (DeFi) sectors are increasingly turning to stablecoins like USDC and USDT for payroll, citing faster settlement and alignment with the digital ecosystem.
According to Pantera Capital’s 2024 Blockchain Compensation Survey, the share of professionals receiving part of their salary in cryptocurrency nearly tripled from 3% in 2023 to 9.6% in 2024, with USDC accounting for 63% of all crypto payrolls. Stablecoins now dominate digital asset compensation, making up more than 90% of reported payouts, driven largely by crypto-native companies seeking efficiency and global reach.
But while these tokens are pegged to the U.S. dollar, the IRS does not treat them like cash. Instead, they are classified as property—a distinction that brings significant tax and compliance implications.
“The biggest misconception in the U.S. is that a stablecoin is the same as cash,” said Matthew May, CPA and co-founder of Acuity, which advises crypto-native businesses on tax compliance. “While that’s true from a value perspective, at a minimum you are creating a reporting burden for your employees on their individual tax returns.”
IRS Position: Digital Assets Are Property
According to the IRS, digital assets—including stablecoins—are considered property for federal tax purposes. This means general tax principles for property transactions apply. “Anyone who sold crypto, received it as payment or had other digital asset transactions needs to accurately report it on their tax return,” the agency states in its guidance. Taxpayers must answer a digital asset question on Form 1040 and report all related income. Common digital assets include cryptocurrencies, stablecoins, and non-fungible tokens (NFTs).
For employees, wages paid in digital assets are taxable and must be reported on Form W-2. Independent contractors receiving crypto payments must report the fair market value on Form 1099-NEC if annual payments exceed $600. However, under 2025’s One Big Beautiful Bill Act (P.L. 119-21), the threshold for certain information returns will rise to $2,000 starting in 2026—a change payroll teams should keep in mind.
Valuation: When a Dollar Isn’t a Dollar
Employers must determine the fair market value of stablecoin payments at the time of transfer. While most stablecoins maintain their peg, exceptions can create headaches. “I think for the established stablecoins, an accounting election will be allowed at some point to peg the stablecoin at $1,” May said. “But you will have to monitor that the stablecoin didn’t lose its peg during the period to make sure your assumptions are true.”
When USDC briefly lost its peg during the Silicon Valley Bank crisis, companies faced the challenge of recalculating obligations. “At best it is a logistical headache, at worst you create additional liability,” May warned.
Reporting Obligations: W-2s, 1099s, and More
Whether compensation is in dollars or digital assets, it’s taxable. “When you give your employees or contractors something of value, you are always at risk of creating reporting requirements, and cryptocurrency is no different,” May said. The IRS requires employers to withhold income and payroll taxes on crypto wages just as they would for cash, and to report the value on Form W-2. Contractors must receive Form 1099-NEC for payments over the threshold.
Employees also face added complexity. They must check the digital asset box on their tax return and report any subsequent transactions—even if they never convert the stablecoin to cash.
Smart Contracts and Wallets: Efficiency or Exposure?
Some companies use wallets or smart contracts to automate payroll. While efficient, these tools can introduce new risks. “At a minimum you are creating a reporting burden for your employees,” May said. Businesses also need to account for gas fees, which can spike unexpectedly. “The different chains have had huge swings over the years in fees, and many have been burned when fees got out of whack on the network.”
Internal Controls: Preparing for Audits
To stay compliant, companies need strong internal controls and enterprise-grade tools. “Internal controls for monitoring and tracking are a must,” May emphasized. “There will be a heavy emphasis on enterprise-grade tools like Ledgible or other emerging technology platforms to monitor and record spot prices and transaction volume and convert them into something comparable to a bank feed.”
Legal Liability and Employee Disclaimers
As regulators increase enforcement, founders and CFOs face growing liability risks. May expects legal teams to require employee acknowledgments and disclaimers. “I’m sure lawyers will quickly insist on requiring acknowledgments regarding the risks and requiring signed legal disclaimers if employees want to accept any form of cryptocurrency as payment,” he said.
Looking Ahead: Smart Contracts and Tokenized Rewards
Will payroll ever be fully decentralized? May is doubtful. “I don’t see payroll being decentralized,” he said. “But I can see simple deferred payment obligations, especially ones that only require the passage of time, to move to smart contracts.”
As for NFTs, token vesting, and reputation-based rewards, payroll professionals should start preparing now. “I think payroll professionals should start acclimating to the tools available in the space to bring validated data into their existing accounting environment,” May advised.
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