If a taxpayer receives virtual currency as payment for services, what is it not subject to?

Receiving virtual currency as payment for services falls under the category of taxable income, meaning it is subject to income tax and self-employment tax when received for services rendered. The IRS treats virtual currency as property, so any gain or loss realized from selling or exchanging it could lead to capital gains tax obligations.

Value-added tax (VAT), on the other hand, is a type of indirect tax that is typically applied to the value added to goods and services at each stage of production or distribution, rather than a direct tax imposed on income or profit. Since the U.S. does not have a federal VAT system in place, and because the nature of virtual currency as payment for services is directly connected to income from those services, the correct recognition is that it is not subject to value-added tax.

Thus, the context of virtual currency transactions protects taxpayers from VAT implications in the U.S. tax system, making that answer accurate.