The Internal Revenue Service announced on Tuesday that it will categorize virtual currencies like Bitcoin as property, and not as a currency, a move that will impose significant taxes and regulations on the fledging market, but will likely be a boon for investors.
Payments made to employees and workers with virtual currency will be subject to federal income tax, and any payment made using virtual currency will now have to be reported in the same way as other payments made in property.
But any gains investors make from Bitcoin will be treated as capital gains, meaning they could be subject to lower tax rates.
Bitcoin 'miners', who verify transactions made with the virtual currency and generate new currency using complex algorithms, will now be forced to pay income taxes on their earnings, as well as payroll taxes to any employees.
Governments are beginning to step up their regulation of Bitcoin as the virtual currency struggles to achieve legitimacy.