How are crypto mining rewards taxed for expats?

Cryptocurrency mining rewards are taxable income for US persons, including expats, and the tax treatment depends on whether your mining activity constitutes a business or a hobby.

If mining is a business (significant equipment investment, regular activity, intent to earn profit), the mined cryptocurrency is reported as self-employment income on Schedule C at its fair market value when received. You can deduct ordinary and necessary business expenses, including electricity costs, equipment depreciation, internet costs, and mining pool fees. The net income is subject to both income tax and self-employment tax (15.3%).

If mining is a hobby (casual activity, small scale, no significant investment), the mined cryptocurrency is reported as Other Income on Schedule 1. Under the Tax Cuts and Jobs Act (effective through 2025), hobby expenses are not deductible, meaning you pay tax on the gross value of mined coins without any deductions for electricity or equipment.

For expat-specific considerations: if mining is your business and you perform the mining activity while physically located in a foreign country, the income may qualify for the Foreign Earned Income Exclusion. This is because mining income from a trade or business is earned income from personal services. However, the FEIE only offsets income tax — self-employment tax is still owed unless a Totalization Agreement provides relief.

If mining is a hobby, the income is other income and does not qualify for FEIE. You may be able to claim Foreign Tax Credits if your country of residence taxes the mining income.

The cost basis of mined cryptocurrency is its fair market value at the time of mining. When you later sell or exchange the mined crypto, you calculate capital gain or loss based on this basis. The holding period begins on the date you receive the mining reward.

Practical tip: track the fair market value of every mining reward on the date received. Mining pools that pay small amounts frequently create extensive transaction records — crypto tax software is essential for managing this volume accurately.

At Zenith Financial, we help miners classify their activity correctly and optimize the tax treatment of their mining operations.