If you’re involved in cryptocurrency—whether as an exchange, broker, payment processor, or business making crypto payments—you’re required to report certain transactions to the IRS. As digital assets gain wider adoption, the IRS has increased its oversight, making it more important than ever to understand which Form 1099 to file and when. This guide provides a comprehensive overview of reporting crypto-related activity using the appropriate 1099 forms, helping you stay compliant and avoid costly errors.
Understanding crypto taxation in the U.S. for 1099 filers
If you file Form 1099 to report crypto-related transactions, it’s crucial to know how the IRS treats cryptocurrency for tax purposes. The IRS classifies cryptocurrency as property, not currency. This means your crypto transactions are subject to property tax rules, similar to those for stocks or real estate.
The tax implications of crypto transactions depend on factors such as transaction type, holding period, and the asset’s cost basis. It’s essential to report accurately to avoid penalties and fines.
Importance of collecting W-9/W-8 before filing 1099s
Before you can file any Form 1099, you must first collect accurate taxpayer information from your payees. This is done using Form W-9 for U.S. persons, which gathers essential details like the payee’s name, address, and Taxpayer Identification Number (TIN). Filing 1099s without this information can result in IRS mismatches, penalties, or unnecessary backup withholding.
Whether you’re a crypto exchange, a payment processor, or a business making crypto-related payments, requesting a completed W-9 upfront ensures your 1099 filings are accurate and compliant.
For foreign payees, you should request the appropriate Form W-8, typically Form W-8BEN for individuals or Form W-8BEN-E for entities. These forms certify the recipient’s foreign status and may be used to qualify for reduced withholding rates under a tax treaty. Since foreign persons usually don’t receive Form 1099, their U.S.-sourced income is generally reported using Form 1042-S instead.
Crypto reporting obligations: Who must file and which IRS forms to use?
Several types of entities are responsible for reporting cryptocurrency transactions to the IRS by filing the appropriate IRS tax form. Understanding who needs to file helps provide clarity and ensure compliance.
1. Centralized crypto exchanges
Crypto exchanges act as brokers when you buy, sell, or trade cryptocurrency on their platforms. These exchanges must file Form 1099-B with the IRS to report your sales and exchanges of digital assets. They facilitate the transfer or sale of crypto and track transaction details needed by the IRS.
2. Payment processors
Payment processors that handle cryptocurrency payments for goods and services must file Form 1099-K when the transaction volume exceeds the reporting thresholds. They report the gross amount of crypto payments processed on behalf of businesses. These processors act as third-party networks, processing payments in crypto and reporting total transaction amounts to the IRS.
3. Businesses paying contractors or vendors using cryptocurrency
Suppose your business pays contractors, freelancers, or vendors using cryptocurrency as compensation. In that case, you must file Form 1099-NEC to report the fair market value of the crypto payments as ordinary income to the recipient. Paying with crypto is considered taxable compensation, just like cash payments, and must be reported.
4.Businesses distributing staking rewards, bonuses, or prizes
If you distribute staking rewards, referral bonuses, or other types of crypto-based prize winnings, you’re required to report these as miscellaneous income using Form 1099-MISC. This applies to crypto exchanges, staking platforms, and even businesses running promotional campaigns that reward users in digital assets.
5. U.S. Businesses or Platforms Paying Foreign Persons
If your crypto business or platform pays non-U.S. persons, such as foreign contractors, vendors, or users, in cryptocurrency, these payments must be reported on Form 1042-S instead of a 1099. This form is used to report U.S.-sourced income paid to foreign individuals or entities, including staking rewards, service payments, or other forms of compensation.
Introduction of Form 1099-DA in 2025
Starting in 2025 (for the 2024 tax year), the IRS will introduce Form 1099-DA as part of its efforts to enhance tax compliance in the digital asset sector. This new form is specifically designed to assist brokers in reporting gross proceeds from digital asset transactions, including cryptocurrencies and specific non-fungible tokens (NFTs). It aims to standardize the reporting process, similar to how Form 1099-B is used for reporting transactions involving stocks and other securities.
Why was Form 1099-DA introduced?
With the rising volume and complexity of cryptocurrency transactions, traditional 1099 forms, such as 1099-B, 1099-MISC, or 1099-K, have proven insufficient for capturing all the required details unique to digital assets. To close the tax gap and provide clearer reporting obligations, the IRS, under the Infrastructure Investment and Jobs Act (IIJA), mandated that brokers of digital assets report specific transaction data using this new form.
Who is required to file Form 1099-DA?
Form 1099-DA is used to report proceeds from the sale or exchange of digital assets. The responsibility to file this form primarily falls on brokers involved in digital asset transactions. A digital asset broker is any person or entity that, in the regular course of business, facilitates the sale or exchange of digital assets on behalf of others. Brokers who are U.S. persons (including U.S. branches of foreign entities) who carry out these transactions must file Form 1099-DA. Foreign branches or offices are generally excluded. This includes:
- Those who regularly offer to redeem digital assets they created or issued.
- Agents, dealers, or intermediaries who handle customer transactions involving digital assets.
Reporting requirements timeline
2025 transactions: You are required to report only gross proceeds from digital asset sales. However, they may include cost basis information voluntarily without facing penalties.
Transactions on or after January 1, 2026: You must report both gross proceeds and the cost basis information for covered securities, and may optionally report the basis for noncovered securities.
IRS transition relief for brokers reporting digital asset sales on 1099-DA
The IRS acknowledges the challenges you face in complying with new rules for reporting digital asset sales and backup withholding, which take effect in 2025. To support a smoother transition, the IRS issued Notice 2024-56, which offered relief from penalties and backup withholding requirements for transactions in 2025 and 2026.
Building on that, the IRS issued Notice 2025-33, extending this relief through 2027 to give you more time to meet their obligations. Under this extended relief, you are not required to perform backup withholding on digital asset sales in 2027 if you verify the payee’s information using the IRS TIN Matching Program.
Furthermore, if the value of withheld digital assets declines during exchanges in 2027, you can avoid penalties provided you quickly sell the withheld assets for cash. The IRS also offers additional relief for you, handling customers who have not yet been classified as U.S. persons, further easing compliance during this period.
Final thoughts
As cryptocurrency reporting requirements continue to evolve, understanding your responsibilities as a filer is essential for staying compliant with the IRS. Whether you’re issuing payments, managing a platform, or brokering digital asset transactions, using the correct 1099 form—especially the new Form 1099-DA—can help prevent penalties and audit risks.
Partnering with a reliable Form 1099 e-file provider can simplify the process, help you stay organized, and keep your business running smoothly.
