The IRS has provided information on the treatment of virtual currency, which is not considered currency at all. Virtual currency is treated as property for U.S. Federal tax purposes and as such, may be subject to ordinary or capital treatment depending on the circumstances. Employers paying employees in bitcoins or other virtual currency must report the payment on a W-2 and follow the same payroll tax rules as payments in true currency. Similarly, payments to independent contractors are subject to self-employment taxes rules and Form 1099 reporting.

For more information, view the IRS News Release.