Key Takeaways
- The tax will be phased in over three years at a rate of 10% annually.
- Under the proposal, crypto miners will be mandated to estimate the electricity costs generated by any “electricity generating plant.”
- Crypto miners are also requested to report on how much electricity they use and what kind of power was tapped.
US-based crypto miners will now likely have to pay a 30% excise tax on electricity costs, according to a Department of the Treasury supplementary budget explainer paper released on March 9th.
As per the proposal, the tax would be implemented after Dec. 31 and will be phased in over 3 years at a rate of 10% a year. The tax rate would reach the max 30% tax rate by the third year. Under the new proposal requirements, crypto miners must report how much electricity they use and what type of power was tapped.
The document notes that crypto miners who also acquire their electricity needs off-grid would still be subject to the tax and would also be mandated to estimate the electricity costs generated by any “electricity generating plant.”
Justifying the need for taxation, the Treasury claims that an excise tax on electricity usage by digital asset miners could reduce mining activity along with its associated environmental impacts and other harms.
“The increase in energy consumption attributable to the growth of digital asset mining has negative environmental effects and can have environmental justice implications as well as increase energy prices for those that share an electricity grid with digital asset miners,” the document reasons.
Apart from the crypto miner taxation, US President Joe Biden’s latest 2024 budget proposal also includes a crackdown on crypto wash sales while also reportedly suggesting changes to crypto tax treatment with the aim of raising around $24 billion.
A tax-loss harvesting strategy involves a crypto trader deliberately selling an investment that has lost value for tax purposes. The new budget proposal involves a provision to end this strategy.
The new proposed tax regime on crypto miners is expected to hit the miners harder as they are trying to navigate their way through the bear market. The lower Bitcoin prices, and higher energy prices have made mining as a business to become incredibly unsustainable.
The unrelenting nature of crypto miners forced Core Scientific Inc, one of the biggest publicly traded cryptocurrency mining companies in the United States, to file for Chapter 11 bankruptcy protection in December 2022.
