Crypto Tax Rates 2024: Breakdown by Income Level | CoinLedger (2024)

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 circ*mstances, 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.

What tax rate will I pay on cryptocurrency?

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

Because of inflation, tax brackets have been adjusted upwards by about 7% in the 2023 tax year. If your income has remained the same, it’s possible that you may be in a lower tax bracket.

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 income won’t pay a flat 12% tax. Instead, they’ll pay 10% on the first $11,000 and 12% on the next $14,000.

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.

What tax rates do I pay on NFTs?

NFTs are taxed similarly to other crypto-assets. When you dispose of an NFT, you’ll incur a capital gain or a loss based on how the price of your NFT changed since you originally received it.

If your NFT is considered a collectible, you’ll pay the collectible tax rate of 28% on long-term NFT gains.

For more information, check out our guide to NFT taxes.

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

Itemized deductions can reduce your tax bill for the year.

In some cases, deductions can reduce your taxable income to the point where you may fall into a lower marginal tax bracket. For example, 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.

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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Are there other ways I can reduce my cryptocurrency taxes?

Here are a few strategies that can help you save money on your crypto tax bill.

Realize profits in low-income years

The higher your taxable income, the more taxes you’ll pay on capital gains. As a result, many investors choose to realize profits in years when their income is low — for example, when they are in-between jobs or in school full-time.

Take advantage of long-term capital gains

Remember, the tax rate for long-term capital gains is significantly lower than the tax rate for short-term capital gains. As a result, simply holding your assets for longer than 12 months can significantly reduce your tax bill.

Harvest your capital losses

Selling your cryptocurrency at a loss comes with tax benefits.

Capital losses can offset capital gains and up to $3,000 of ordinary income. Net losses exceeding $3,000 can be rolled forward into future years.

It’s important to note that cryptocurrency has a unique advantage when it comes to tax loss harvesting.

In the United States, stocks are subject to a wash sale rule which states that investors cannot claim losses if they buy back their shares within 30 days. However, this rule currently does not likely apply to cryptocurrency.

For more tips, check out our complete guide on reducing your crypto taxes.

How does the IRS track crypto?

Despite the fact that cryptocurrency is ‘pseudo-anonymous’, the IRS can track your cryptocurrency transactions.

Remember, all transactions on blockchains like Bitcoin and Ethereum are publicly visible. That means that cracking down on tax fraud is as simple as matching ‘anonymous’ transactions to known investors. In the past, the IRS has worked with contractors like Chainalysis for this exact purpose.

In the near future, the IRS will have even more information at its disposal to track cryptocurrency. Starting in the 2026 tax year, all exchanges operating in the United States will be required to report capital gains and losses to the IRS via Form 1099.

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.

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