PSA: Remember that receiving the $ENS airdrop is a taxable event!

Last week, anyone who had a .eth address got rewarded with $ENS tokens.

Receiving free money from airdrops is nice, but there is one annoying thing about it: it needs to be reported on your tax return!

Here’s what I’ve learned about how airdrop taxes work. I should note that I’m not a tax professional and that this information is based on online research and conversations with my accountant. I did my own research because I was confused about how to report airdrops on my taxes initially — I encourage you to do your own research as well!

How much do I owe in taxes for the $ENS airdrop?

Airdrop rewards for $ENS (or any other crypto tokens you get) are taxed as income based on its fair market value in USD at the time you received them. You can figure this out by looking at sites like Coingecko for historical prices.

How much you end up paying in taxes depends on the number of tokens you received and what income tax bracket you fall into for the year.

Do airdrop rewards get taxed twice?

The answer is …. Sort of.

If you decide to sell your $ENS, you will incur capital gains or losses. This time, you’ll be paying taxes based on how the price of your tokens has fluctuated since you originally received them. You technically don’t get taxed on the same income twice (but it’s still super annoying).

Here’s an example of how it works (using round numbers just to keep things simple):

Let’s say that you earn $1000 of airdrop rewards. Then, the price increases to $2000 and you decide to sell. In this case, you’ll report $1000 of ordinary income and $1000 of capital gains on your taxes.

Where do I report the $ENS airdrop on my taxes?

Historically, investors have reported airdrop rewards on Form 1040 Schedule 1 as ‘Other Income’. You can also just upload your airdrop rewards into whatever crypto tax software you are using (I uploaded my $ENS airdrop rewards into CryptoTrader.Tax and it was pretty simple).

TL;DR: If you got the airdrop, you’ll need to pay income tax on your $ENS rewards. If you sell it for a higher price than you received it, you’ll need to pay capital gains as well.