Tax Break Proposal for Small Stablecoin Payments and Staking Rewards

US lawmakers are rolling out a new proposal aimed at easing the tax burdens faced by everyday cryptocurrency users. This discussion draft aims to exempt small stablecoin transactions from capital gains taxes and introduces a deferral option for staking and mining rewards.

Key Takeaways

Tax Exemption for Small Stablecoin Transactions: Users can make stablecoin transactions of up to $200 without having to recognize capital gains or losses, as long as they meet specific criteria.
Staking Rewards Deferral: Taxpayers can choose to defer income recognition on staking and mining rewards for up to five years.
Safeguards Against Abuse: The proposal includes measures to prevent misuse of these tax breaks.
Industry Response: Crypto groups have urged lawmakers to reconsider potential restrictions on stablecoin rewards on third-party platforms.

US lawmakers propose tax break for small stablecoin payments, staking rewards

Proposed Tax Relief for Small Stablecoin Transactions

Representatives Max Miller from Ohio and Steven Horsford from Nevada have introduced a draft to amend the Internal Revenue Code, addressing the growing prevalence of digital assets in consumer payments. This proposal aims “to eliminate low-value gain recognition arising from routine consumer payment use of regulated payment stablecoins.”

According to the draft, gains or losses would not need to be reported for stablecoin transactions that are $200 or less. The stablecoin must be issued by a permitted issuer under the GENIUS Act, must be pegged to the US dollar, and generally maintain a trading value close to $1.

Moreover, there are safeguards in place to prevent any abuse of this exemption. If a stablecoin were to trade outside a narrow price range, the exemption would not apply. Additionally, brokers or dealers would not be eligible for this tax benefit. Lastly, the Treasury Department would retain the power to establish anti-abuse regulations and reporting mandates.

Draft bill explains the reasoning behind tax breaks. Source: House

Deferring Taxes on Crypto Staking Rewards

The proposal also addresses concerns related to “phantom income” that results from staking and mining. Under the new plan, taxpayers would have the option to defer income recognition on staking or mining rewards for up to five years. This means individuals would not face immediate taxation upon receiving those rewards.

The draft highlights that this provision aims to find a balanced compromise between taxing income right away or allowing complete deferral until the income is disposed of. Moreover, it extends current tax treatments for securities lending to certain digital asset lending arrangements, applies wash sale rules to actively traded crypto assets, and allows traders and dealers to choose mark-to-market accounting for digital assets.

Call for Rethinking Stablecoin Rewards Restrictions

Recently, the Blockchain Association sent a letter to the US Senate Banking Committee, signed by over 125 crypto companies and industry organizations. The letter urged lawmakers to reconsider plans to impose restrictions on stablecoin rewards offered through third-party platforms.

The association argued that extending such limitations beyond stablecoin issuers would hinder innovation and foster market dominance by larger companies. The letter asserted that crypto rewards should be treated similarly to incentives provided by banks and credit card companies, warning that prohibiting stablecoin features akin to these rewards would compromise fair competition in the market.

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