Glossary

Mining income

Mining income is the fair market value of coins received for validating transactions on a proof-of-work network, taxed as ordinary income when received and, for miners operating as a business, subject to self-employment tax.

How it works

Coins received for validating transactions on a proof-of-work network are ordinary income at fair market value on receipt, and that value becomes their basis. Business miners report on Schedule C, owe self-employment tax, and deduct electricity, hardware depreciation, pool fees, and hosting. Hobby miners report the income without deductions. Selling the coins later is a second event: capital gain or loss against the basis.

Why it matters

Mining creates income even when coins are held, and the business-versus-hobby classification changes the tax substantially.

Related: Schedule C, hobby versus business. Read more: crypto mining taxes.

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Definitions are general information, not legal advice, and may not reflect the most recent changes in law.

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