The IRS Just Made Crypto Payroll A Tax Nightmare—Here's What Companies Need to Know Before Audit Season

Fri, Sep 12, 2025, 1:31 PM 3 min read

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What started as Silicon Valley’s latest perk could become corporate America’s next compliance headache. The IRS's sweeping new digital asset reporting rules are transforming crypto payroll from an HR novelty into an audit magnet, leaving employers scrambling to understand wallet-level basis tracking before they face penalties that can reach 15% of unpaid taxes.

The wake-up call comes as Form 1099-DA and Revenue Procedure 2024-28 create a perfect storm of reporting requirements that many payroll departments simply aren’t equipped to handle. For companies that embraced crypto compensation to attract top talent, the regulatory honeymoon is officially over.

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The days of treating crypto payroll as a straightforward W-2 transaction are finished. Under the IRS’s new framework, employers must now think beyond basic wage reporting to comprehensive basis documentation—a shift that’s catching many companies off guard.

“Payroll teams must shift from thinking ‘crypto comp equals W-2 done’ to ‘crypto comp equals W-2 plus basis reporting support,'” said Nicholas Slettengren, co-founder and CEO of Count on Sheep to Reuters. “Otherwise, the IRS’s new 1099-DA structure could result in costly confusion for employees.”

The complexity stems from Form 1099-DA’s emphasis on gross proceeds reporting without including cost basis by default. This omission creates a dangerous mismatch when workers later sell or transfer their crypto assets. Without proper documentation, the IRS assumes a zero-cost basis—effectively triggering double taxation that employees will blame on their employers, Reuters reports.

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Meanwhile, Revenue Procedure 2024-28 adds another layer of complexity by requiring wallet-level basis tracking. “Revenue Procedure 2024-28 turns crypto payroll into a ledger-management problem,” Slettengren explains, requiring teams to “track per-wallet basis at the moment of payment” and “provide wallet-level cost basis support to employees so W-2s and 1099-DAs don’t conflict.”