This year, we issued over 56 million Form 1099-DAs (tax form required for reporting digital asset transactions) to the IRS, one for every reportable transaction our customers made in 2025. That is what the law requires even though nearly a third of those forms (18.5 million) were for transactions worth less than $1. Over half were for $10 or less. Three out of every four were for less than $50.
These forms were not sent to sophisticated traders who made big returns from crypto. The vast majority of the forms are for staking rewards measured in fractions of a cent, small purchases, and routine activity. Every single one generates a form that a real person is now expected to understand, reconcile, and report, or risk an IRS notice.
The problem is not the technology. It’s the tax code.
Before digital assets enter the picture, the tax system already imposes an extraordinary compliance burden. According to the Tax Foundation, individual tax returns alone cost Americans a combined $146 billion in time and out-of-pocket expenses.
Additionally, based on IRS estimates and independent filer surveys, the average non-business filer spends about eight hours and between $128 and $300 on a standard return. Nearly one in five Americans say they do not feel prepared to file.
For the more than 55 million U.S. adults who now hold digital assets, there is an additional layer. Standard tax software does not handle crypto transactions, so many investors need dedicated crypto tax tools that cost $49 to $599 per year on top of their regular filing costs.
A typical active holder can spend $250 to $500 annually just to stay compliant, before counting the hours spent reconciling transactions across exchanges and wallets.
But here is where it gets even harder for the average taxpayer. In 2025, brokers like Kraken report gross proceeds but not cost basis. While many taxpayers were reporting crypto taxes using tax calculators or other software, Form 1099-DA just caused taxpayers a lot of confusion as the forms presented only gross proceeds in a way many did not understand.
We received thousands of questions from clients trying to understand the Forms 1099-DA, in addition to thousands more inquiries given the difficulties for exchanges to produce these on the timeline laid out by the IRS and Treasury.
Here is what Kraken’s own reporting data shows for the 2025 tax year:
53.4% of all forms were for transactions of $10 or less. 74.3% were under $50. Only 8.5% exceeded $600, the threshold that triggers reporting in most other areas of the tax code such as transactions on a payment app like Venmo.
The hours taxpayers spend reconciling these micro-transactions, often with incomplete data, generate costs wildly disproportionate to any revenue the IRS will collect from them.
The good news is that some in Congress are working to address this. Any tax reform that simplifies life for taxpayers should address these core issues.
The concept is simple: a de minimis exemption that excludes small, routine digital asset payments from capital gains reporting.
Imagine you walk into a Steak ’n Shake and pay for a $7.99 meal with Bitcoin through a payment app. You have triggered a taxable event.
You are technically required to look up the cost basis of the specific Bitcoin you spent, calculate whether you had a gain or loss on that fraction of a coin, and report it on Form 8949. All for a hamburger and some tallow fries.
The US is an outlier in this respect. The UK, for instance, applies an annual capital gains allowance that effectively exempts small crypto transactions such as this from reporting. A targeted de minimis threshold wouldn’t be novel. It would just catch America up.
And while current proposed tax legislation does include a de minimis provision, it only covers payment stablecoins. It does not cover Bitcoin, the most widely held digital asset in America, which is accepted by thousands of U.S. merchants.
A meaningful de minimis threshold, indexed to inflation and paired with anti-abuse guardrails, would eliminate millions of unnecessary forms while protecting revenue integrity.
Congress has already established the regulatory framework for mainstream digital payments through the GENIUS Act, signed into law in July 2025. The tax code should be agnostic whether you are paying with cash, Bitcoin or stablecoins.
A large portion of those sub-dollar 1099-DAs are staking rewards: tiny fractions of tokens earned for helping validate blockchain networks. While the current law is unclear, the IRS takes the position that each reward is treated as ordinary income at the moment of receipt, valued at fair market value on that date.
Most people do not sell staking rewards immediately. They keep staking. But they now owe taxes on value they have not realized. If the token price drops between receipt and filing, the taxpayer owes tax on more than the asset is currently worth.
This is phantom income and it’s a consequence of applying rules written for dividends and wages to a fundamentally different kind of asset.
Congress should allow taxpayers to choose when staking rewards are taxed: at the time of receipt (as today) or at the time of sale, when the gain or loss is real and measurable. This would eliminate phantom income, dramatically reduce the volume of micro-transaction reporting, and align staking with how most Americans actually experience it, as something they hold rather than something they spend.
Kraken and other exchanges already maintain the transaction level data needed to support either reporting method. The infrastructure exists; Congress simply needs to authorize the choice.
This is not about helping crypto companies. It is about 55 million Americans, spanning every state, age bracket, and industry, who are navigating a tax system designed before digital assets existed. Congress should act to make taxpayers’ lives easier.
The post We issued 56 million tax forms for 2025. Most were under $50. It’s time to fix digital asset taxes. appeared first on Kraken Blog.
