Quote from: aantonop on April 13, 2013, 05:52:00 PM

Quote from: frankAcct366 on April 13, 2013, 04:54:21 PM

I could certainly comment on those issues. I'll even include a basic thought process here for the first question to provide some evidence of my qualifications. Payment of payroll in Bitcoin would appear to require an immediate valuation of the compensation on the date paid. The source of the valuation is probably a bit flexible, but consistency would likely be the rule that would be most important. Thus if you valued with Mt.Gox once, you should probably do so every time (unless you can document a very specific reason why you change, such as the site is not available on the date). Might make sense to build a formula that does a weighted average of multiple sources just to try and smooth out some volatility.

You would report the dollar-value estimate as compensation and withhold an amount of cash valued at the required tax table rate. If you're trying to pay only in Bitcoin though (no cash portion of payment), you'd need essentially build an employment agreement that included an "employer buy back" of the right amount of Bitcoin to withhold for the tax. I.e., employee is to be paid 10 bitcoin, withholding requirement is 1 BTC, you agree to buy (for cash) the one bitcoin back immediately at payroll, thus providing sufficient cash to cover the employee's withholding.

The amounts granted as compensation and withheld would then feed directly into the appropriate W-2. Of course, this is all assuming a W-2 employee, if you're looking at 1099s it would be far simpler.

Great analysis, I'm persuaded enough to pursue further. Sending PM.

As an E.A., I agree with the above analysis of the treatment and implementation of a bitcoin payroll system. I would add, make sure you have a record of your bitcoin payroll "checks." Since bitcoin is pseudo-anonymous and there is little evidence of bitcoin transfers, you would need to have a system where the employee and employer both sign some kind of statement on each pay date that states the amount paid in bitcoins paid, the salary rate, the amount of hours worked,the withholding amounts. Basically everything that is reflected in a regular W-2.

I'm not an expert in payroll taxes, so I would raise this question. Are there any special issues relating to your plan to pay employees in bitcoins when it comes to filing W-2 and form 941? Would you simply convert all bitcoin payments into USD, at the time of payment, and report all earnings and withholding as USD as usual?