The Internal Revenue Service announced Tuesday that virtual currencies such as bitcoin are to be treated as property and not as currency.
“General tax principles that apply to property transactions apply to transactions using virtual currency,” the IRS said in a statement, Reuters reported.
“The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer,” the agency said.
Wages paid to employees in bitcoin are taxable to the employee and must be reported by an employer on a W-2 form, the agency said.
Other payments made using virtual currency to independent contractors or service providers are also taxable, it said.
According to Reuters, bitcoin is bought and sold on a peer-to-peer network independent of government control.
Sen. Tom Carper, Delaware Democrat, said in a statement that the IRS announcement “provides clarity for taxpayers who want to ensure that they’re doing the right thing and playing by the rules when utilizing bitcoin and other digital currencies.”