Are you wondering how much cryptocurrency taxes would cost you? Let’s take a look at how much you’ll owe the IRS in various scenarios.
How Much Is The Crypto Tax Rate In The USA?
Cryptocurrency can be taxed as long-term capital gains, short-term capital gains, or regular income, depending on your circumstances. Let’s take a look at all three.
- Ordinary Earnings
Cryptocurrency made through mining or staking is considered ordinary income and is taxed accordingly. Depending on your income level, this can range from 10% to 37 percent.
- Long-Term Capital Gains
You’ll be subject to the long-term capital gains tax rate if you’ve owned Bitcoin for more than a year. Depending on your income level, this can range from 0% to 20%.
- Short-Term Capital Gains
You’ll be subject to the short-term capital gains tax rate if you’ve owned your bitcoin for less than a year. This is regarded the same as ordinary income for tax purposes, with rates ranging from 10% to 37% depending on your income level.
Long-Term Capital Gains Tax Rate
You’ll be taxed at the long-term capital gains rate if you keep your bitcoin for more than 365 days. The following table shows the tax rates by income level.
Tax Bracket | Single | Married | Head of Household |
0% | $0-$40,400 | $0-$80,800 | $0-$54,100 |
15% | $40,401-$445,850 | $80,801-$501,600 | $54,101-$473,750 |
20% | $445,851+ | $501,601+ | $473,751+ |
Short Term Capital Gains/Ordinary Income Tax Rate
You must pay ordinary income tax if you have kept cryptocurrency for less than 365 days or obtained cryptocurrency revenue. The following table shows the tax rates by income level.
Tax Brackets for 2022
- Single Filers and Married Couples Filing Jointly
Tax Rate | Taxable Income (Single) | Taxable Income (Married Filing Jointly) |
10% | Up to $10,275 | Up to $20,550 |
12% | $10,276 to $41,775 | $20,551 to $83,550 |
22% | $41,776 to $89,075 | $83,551 to $178,150 |
24% | $89,076 to $170,050 | $178,151 to $340,100 |
32% | $170,051 to $215,950 | $340,101 to $431,900 |
35% | $215,951 to $539,900 | $431,901 to $647,850 |
37% | Over $539,900 | Over $647,850 |
- Married Couples Filing Separately and Head-of-Household Filers
Tax Rate | Taxable Income (Married Filing Separately) | Taxable Income (Head of Household) |
10% | Up to $10,275 | Up to $14,650 |
12% | $10,276 to $41,775 | $14,651 to $55,900 |
22% | $41,776 to $89,075 | $55,901 to $89,050 |
24% | $89,076 to $170,050 | $89,051 to $170,050 |
32% | $170,051 to $215,950 | $170,051 to $215,950 |
35% | $215,951 to $323,925 | $215,951 to $539,900 |
37% | Over $332,925 | Over $539,900 |
How Do Tax Brackets Work?
Assume you were single in 2021 and earned $90,000 in taxable income. Is your 20221 tax bill just 24% of $90,000 – or $21,600? No! Your tax liability is actually lower. Because marginal tax rates are used, only a portion of your income is taxed at the 24% rate. The rest is taxed at ten percent, twelve percent, and twenty-two percent rates.
Again, if you’re single and have a taxable income of $90,000 in 2021, the first $9,950 of your income is taxed at 10%, resulting in a tax bill of $995. The following $30,575 of income (from $9,951 to $40,525) is taxed at a rate of 12 percent, totaling $3,669 in tax. The following $45,850 of your income (from $40,526 to $86,375) is taxed at a rate of 22 percent, resulting in a tax bill of $10,087. Only $3,625 of your taxable income (the amount over $86,375) is subject to the 24 percent rate, resulting in an additional $870 in tax. When all is said and done, your total tax for 2021 is only $15,621.
Will The Tax Rate Increase In The Future?
Will the top marginal tax rate be raised soon? If President Biden had his way, it will. Last year, as part of his American Families Plan, President Trump advocated raising the top tax rate from 37 percent to 39.6 percent, which was the rate prior to the Tax Cuts and Jobs Act of 2017. Last year, he failed to get that change passed. It wasn’t even included in the massive spending and relief plan offered by the Biden administration in 2021, which failed.
The president’s ambition to raise the highest federal income tax rate was unaffected by the administration’s inability to pass the Build Back Better Act. Biden’s budget proposals released in March 2022 envisioned raising the top tax rate to 39.6 percent beginning with the 2023 tax year. The 39.6% rate would apply to taxable income beyond $450,000 for married couples filing a joint return, $400,000 for individuals, $425,000 for head-of-household filers, and $225,000 for married people filing a separate return, according to the budget proposal. Under Biden’s approach, these criteria would be increased for inflation every year after 2023.
Need Assistance With Crypto Taxes
The Freecashflow.io team has extensive experience aiding internet business owners with tax and accounting concerns. Some of our peers have worked for multibillion-dollar corporations including Warner Brothers, EY, and Paramount Pictures. You may rely on us for cryptocurrency tax and accounting help. Please do not hesitate to contact us!
