Cryptocurrency exchange Kraken has filed 56 million forms for crypto transactions with the US Internal Revenue Service for the 2025 tax year. Approximately 18.5 million of these forms were for transactions valued at less than $1, with over half being for $10 or less. Notably, only 8.5% of the newly introduced Form 1099-DAs exceeded the $600 threshold, which is the point at which reporting for non-employee compensation is required. Moreover, 74% of these forms were for amounts less than $50.
Each form is also sent to the customer, resulting in a reconciliation task for the taxpayer. Standard tax software does not support crypto transactions, leading Kraken to estimate an additional annual burden of $250-$500 for active crypto holders, beyond standard filing costs. The company emphasizes that the time spent by taxpayers on reconciling these micro-transactions, often with incomplete data, generates costs that are disproportionately high compared to the revenue the IRS will collect from them. According to the Tax Foundation, individual tax returns already cost Americans a combined $146 billion in time and expenses.
The National Taxpayers Union Foundation estimates that the average time for non-business filers to complete their tax returns is approximately 13 hours, at a cost of $290 per return. For the 2025 tax year, brokers are required to report gross proceeds without providing the cost basis, meaning the form only shows the sale amount, not the original purchase price. Kraken received thousands of client inquiries about forms that only captured one side of the calculation. The company identifies two key issues with the tax code: the lack of a de minimis exemption for crypto payments and the treatment of staking rewards as ordinary income upon receipt.
The absence of a de minimis exemption means that even small crypto purchases can trigger a taxable event. For instance, using Bitcoin to buy a meal could require the buyer to look up the cost basis of the specific Bitcoin spent, calculate any gain or loss, and report it on Form 8949.
Similarly, the Cato Institute has argued that buying daily cups of coffee with Bitcoin could result in over 100 pages of tax filings. The second issue pertains to staking rewards, which are considered ordinary income at the time of receipt, based on the token's market price. Most holders do not sell these tokens immediately, resulting in tax liabilities on assets that have not been sold.
If the token's price drops between receipt and tax filing, the tax owed can exceed the current value of the asset, a phenomenon Kraken refers to as 'phantom income.' A significant proportion of the sub-dollar 1099-DAs issued by Kraken were staking distributions. Proposed legislation includes a de minimis provision but is limited to stablecoins. Kraken advocates for a broader, inflation-indexed exemption, combined with safeguards to prevent abuse.
Additionally, the company is pushing for taxpayers to have the option to choose when staking rewards are taxed, either at receipt or upon sale. Kraken's systems, along with those of other exchanges, already support both reporting methods, but legislative authorization is required to implement this change.