Kraken, a leading cryptocurrency exchange, has filed approximately 56 million crypto transaction forms with the U.S. Internal Revenue Service (IRS) for the 2025 tax year. Notably, around 18.5 million of these forms pertained to transactions valued at less than $1, with over half being for $10 or less. The newly introduced Form 1099-DA, which is used for reporting cryptocurrency transactions, reveals that only 8.5% of these forms exceeded the $600 threshold, the point at which reporting for non-employee compensation is triggered.
Moreover, a staggering 74% of these forms were for amounts less than $50. Each form is also sent to the customer, thereby creating a reconciliation task for the taxpayer.
Additionally, standard tax software is not equipped to handle cryptocurrency transactions, resulting in an estimated additional burden of $250-$500 per year for active cryptocurrency holders, over and above standard filing costs. The hours spent by taxpayers in reconciling these micro-transactions often result in costs that are disproportionate to the revenue generated for the IRS.
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 spent on non-business tax returns is approximately 13 hours, with an average cost of $290 per return. The current tax code poses two significant problems. Firstly, the lack of a de minimis exemption for cryptocurrency payments means that even small purchases can trigger a taxable event.
For instance, paying for a meal with Bitcoin can result in a taxable event, requiring the individual to calculate the cost basis of the specific Bitcoin spent and report it on Form 8949. Secondly, rewards earned from staked assets are treated as ordinary income at the moment of receipt, based on the token's market price that day. Most holders retain these tokens instead of selling them, resulting in a tax liability on unsold tokens. If the token price falls between receipt and filing, the tax can exceed the asset's current value, resulting in what 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 it is limited to stablecoins. Kraken is advocating for a broader inflation-indexed exemption, paired with anti-abuse guardrails to prevent structuring.
The exchange is also urging Congress to allow taxpayers to choose when staking rewards are taxed, either at receipt or at sale, when a gain or loss is realized.