FAQ for Employees Receiving Crypto Grants

If you work in crypto, there’s a good chance you’ve been paid in tokens — or at least offered them as part of your compensation. For many, this is an exciting opportunity to become part of the project’s success story. 

But when tax season arrives, excitement often turns into confusion. How do you report crypto income? When do you actually owe taxes? And why does your accountant keep asking for an 83(b) election you’ve never heard of?

These are not trivial questions. Unlike traditional stock or salary compensation, token-based pay introduces a new layer of financial complexity — one where taxation depends on vesting schedules, token volatility, and even the jurisdiction you live in. A single mistake, like misclassifying income or missing a filing deadline, can lead to significant tax penalties or lost savings.

At Toku, we’ve helped hundreds of Web3 organizations — and thousands of contributors — navigate exactly these issues. Whether you’re an employee receiving token grants or a contractor paid in crypto, understanding how your compensation works is essential to maximizing your rewards while staying compliant. This guide will walk you through the fundamental questions every crypto worker should be asking about token compensation, taxation, and optimization — with clear, practical answers.

Crypto Compensation for Employees

Crypto compensation has become one of the defining features of working in Web3. As the industry matures, more and more companies — from early-stage DeFi startups to major blockchain foundations — are paying employees with a mix of fiat and tokens. This hybrid model reflects the decentralized nature of the ecosystem, where tokens serve not just as currency but as a stake in the project’s long-term success.

Why Companies Pay in Tokens

Traditional startups use equity — in the form of stock options or restricted stock units (RSUs) — to attract and retain top talent. Crypto companies, instead, use tokens as their version of equity, offering workers the chance to participate directly in the growth and value of the project.

For the organization, paying in tokens reduces the need for large cash reserves and aligns team incentives with the performance of the token economy. When the project succeeds, the token’s value grows — and so does the reward for everyone involved.

For employees, token compensation offers a powerful upside. Early contributors can receive tokens at a fraction of their future market value, turning their belief in the project into potential financial independence. In many ways, it’s like joining a startup before its IPO — except the liquidity can arrive faster, and the impact can be global from day one.

However, this opportunity also comes with new responsibilities — especially around compliance and taxation. Unlike equity, which is well-understood and supported by decades of regulation, tokens live in a gray area of evolving laws. Each country treats them differently, and even within one jurisdiction, rules can shift quickly.

How Token Grants Work

When you receive tokens as part of your compensation, you’ll typically do so under a token grant agreement. This is a legal document outlining:

• How many tokens you’ll receive;
• The vesting schedule (when you’ll actually earn ownership of those tokens);
• Any lock-up or transfer restrictions; and
• The specific tax implications tied to your jurisdiction.

Token grants are modeled after traditional equity grants — such as Restricted Stock Units (RSUs) or Stock Options — but with additional layers of complexity. 

Because tokens are often volatile, determining their Fair Market Value (FMV) for tax purposes can be tricky. And since some tokens may not yet be publicly traded, their valuation often relies on independent assessments or pre-launch pricing methods similar to 409A valuations for private company stock.

A well-structured token grant program should answer questions like:

• What triggers vesting (time-based, milestone-based, or hybrid)?
• Can tokens be sold immediately after vesting, or are they locked for a period?
• What happens to unvested tokens if you leave the company?
• How are taxes handled at each stage — grant, vesting, and sale?

The answers will determine how much you ultimately keep after taxes and how secure your token ownership is.

Compliance: The Hidden Backbone of Crypto Compensation

For companies, offering token-based pay isn’t as simple as pressing “send” on a wallet. Each token transfer to an employee is a regulated compensation event that can trigger tax obligations, reporting requirements, and even employment law considerations.

Employers must calculate and withhold taxes in fiat currency, even if the compensation is in tokens. That means selling a portion of the tokens or setting aside fiat reserves to remit the taxes to local authorities. 

In the U.S., for instance, the IRS treats tokens as property, and compensation in property must be taxed at its FMV when received. Other countries — like the U.K., Switzerland, and Singapore — have their own frameworks, each with unique reporting requirements.

Without proper infrastructure, this process can easily break down. Many early crypto organizations found themselves overpaying, underpaying, or misreporting taxes, leading to audits, penalties, or employee dissatisfaction. That’s why compliant, crypto-native platforms like Toku have become essential.

Toku’s systems ensure that every step of the token compensation process — from granting to vesting to tax withholding — is handled according to local regulations in over 100 jurisdictions worldwide. This not only protects the company but also gives employees confidence that their compensation is compliant, documented, and secure.

Why Compliance Benefits Employees Too

While compliance might sound like a corporate concern, it has direct and significant implications for employees. If your company fails to report your token income correctly, you could end up responsible for unpaid taxes, even if you never received cash to pay them. Misclassifying your status (as a contractor vs. employee) or failing to track the right FMV at vesting can also result in unexpected tax bills later.

Moreover, proper compliance ensures you can prove the source and legitimacy of your token income, which is essential for accessing financial services. Many banks, mortgage lenders, and even visa authorities require official payroll and tax documentation. Employees who are paid informally in crypto, without compliant reporting, often face difficulties proving their income or assets.

When companies use Toku, they ensure that both the organization and its workforce stay compliant automatically — meaning employees don’t have to guess how to handle token-related taxes or risk issues down the line.

The Bottom Line

Crypto compensation is transforming how people are rewarded for their work — offering transparency, liquidity, and ownership in ways that traditional payroll systems can’t match. But with innovation comes complexity.

Employees receiving tokens must understand not just what they’re earning but how those tokens are structured, vested, taxed, and reported.

By taking the time to learn these fundamentals — and by working with companies that partner with compliance experts like Toku — you can enjoy the upside of token compensation without the sleepless nights that come from uncertainty.

Frequently Asked Questions: Understanding Token Grants, Taxes, and Timing

The following FAQs cover the most common (and often confusing) questions employees ask when they receive crypto as part of their compensation. Each answer is designed to help you understand not only what happens when you’re paid in tokens — but also why it matters for your taxes and long-term financial well-being.

1. Why am I receiving token grants for my compensation? What are token grants?

Token grants are the crypto industry’s version of equity.

Just as traditional tech startups give employees stock options or restricted stock units (RSUs) to reward them for building company value, crypto companies issue tokens that represent ownership or participation in the project’s ecosystem.

When you receive a token grant, you’re not just getting a form of payment — you’re becoming a stakeholder. Your financial upside becomes tied to the project’s success, aligning your incentives with the rest of the team and investors.

From an employee’s perspective, this can be very rewarding:

• You may get tokens at a much lower valuation than their eventual market price.
• You gain a direct stake in the project’s growth.
• You may qualify for more favorable tax treatment compared to receiving the same amount purely in fiat.

However, token grants come with complex vesting rules and tax implications. Each jurisdiction has different views on when those tokens become taxable income, which makes compliance planning essential — both for companies and employees.

2. How can I tell if I’m receiving crypto salary or token grants?

This distinction is critical for understanding your taxes.

• A crypto salary functions like a traditional salary — you’re paid regularly (monthly, bi-weekly, etc.), and taxes are typically withheld at the time of payment. It’s treated as employment income.
• A token grant, on the other hand, is typically issued through a Token Grant Agreement (TGA) that specifies how many tokens you’ll receive, how they’ll vest, and when they’ll be transferred to you.

Here’s how to tell the difference:

• If you’re receiving tokens every month as part of your paycheck, that’s a crypto salary.
• If you’ve signed an agreement with vesting milestones or performance conditions, that’s a token grant.

The distinction also determines which taxes apply. Salaries are subject to income tax and payroll withholdings, while token grants often trigger tax events only upon vesting, settlement, or sale — depending on local regulations.

3. How can I tell what taxes I need to file and pay?

There’s no one-size-fits-all answer — because your tax obligations depend on three key factors:

1. Your tax residency (where you’re considered a resident for tax purposes);
2. Your employment status (employee vs. contractor); and
3. Your token grant structure (when and how the tokens vest).

For example:

• A U.S. citizen working for a U.S.-based crypto company and receiving tokens will generally follow IRS guidance, which treats tokens as property.
• A U.S. citizen living abroad, or a foreign national working for a crypto company incorporated offshore, may be subject to different (or multiple) tax authorities, depending on double taxation treaties.

Because these nuances are easy to overlook, most employees turn to crypto tax specialists — or rely on companies that partner with compliance providers like Toku, which integrates payroll, token grant administration, and tax reporting across 100+ jurisdictions.

4. When do I get taxed?

In most countries, taxes are triggered only when a “taxable event” occurs.

For crypto compensation, there are three main taxable events:

(a) When your tokens vest and settle

For Restricted Token Units (RTUs) or Restricted Token Awards (RTAs), the taxable moment occurs when your tokens vest and are transferred to your control — meaning you can use or sell them without risk of forfeiture.

At that point, the Fair Market Value (FMV) of the tokens is treated as ordinary income.

This is similar to how RSUs work in the equity world.

(b) When you exercise token options

If you’ve been granted token options, you’re given the right (not the obligation) to buy tokens later at a fixed “strike price.”

Taxation occurs when you exercise those options — you’ll owe income tax on the difference between the strike price and the token’s FMV on that day.

(c) When you sell your tokens

Once you sell your vested tokens, you’ll owe capital gains tax on the difference between their sale price and their FMV when you first received them.

If you’ve held them for over a year, you may qualify for long-term capital gains rates (lower than ordinary income rates).

Each of these events has different tax reporting requirements, which your employer or EOR partner (like Toku) should help you manage.

5. If my tokens vest multiple times a year, which price determines my taxes?

Token prices are famously volatile. A token can swing 10–20% in a single day, which makes valuation critical for tax accuracy.

Most tax authorities rely on Fair Market Value (FMV) — typically calculated as:

• The spot price on major exchanges at the time of transfer; or
• A weighted average price (WAP) across multiple exchanges to smooth volatility.

For non-liquid or pre-launch tokens, companies often rely on third-party valuations, similar to private company 409A valuations. These independent assessments establish a defensible FMV for each vesting period, ensuring taxes are calculated correctly and minimizing risk during audits.

6. What if my tokens aren’t traded publicly yet? Do I still pay taxes?

Yes — in most cases, you still owe taxes, even if your tokens are not yet publicly traded.

That’s because taxation is based on the value of the asset at the time it’s received, not whether you can immediately sell it.

If your tokens have no public market price, your company or its legal counsel will determine their value through one of the following:

• Internal pricing models or pre-sale valuations;
• Third-party valuations from certified firms; or
• Benchmarks derived from comparable tokens in the same sector.

For example, a company might value pre-launch tokens at $0.10 each during a funding round, and that FMV would be used for employee taxation — even if the token later lists at $1.00.

This can create challenges for employees who owe taxes in fiat but haven’t yet realized liquidity. Some employers address this through sell-to-cover mechanisms, where a portion of vested tokens are sold to cover taxes automatically.

7. How can I optimize my taxes?

There are two mechanisms employees should understand to avoid overpaying taxes on their token income:

(a) File an 83(b) election (U.S. only)

The 83(b) election allows employees to pay taxes on the token’s initial value (at grant) rather than its future value (at vesting).

If your token appreciates significantly over time, this can save you millions in taxes.

However, it’s a calculated risk:

• If the token’s value drops or the project fails, you can’t recover the taxes you already paid.
• The form must be filed with the IRS within 30 days of the grant date, without extensions.

Many early crypto employees who missed this step learned the hard way — sometimes owing large sums in taxes when their tokens vested during bull markets.

(b) Track your cost basis and avoid double taxation

When you sell your tokens, make sure you understand your true cost basis — the original value used to calculate your initial tax.

Misreporting this can result in paying capital gains tax twice on the same income. Using a crypto-native payroll provider like Toku helps ensure that your cost basis is accurately tracked across every vesting and sale event.

8. Why do companies use Toku for token compensation and compliance?

Because crypto taxation is too complex to handle manually.

Each jurisdiction has its own rules, documentation requirements, and reporting formats. Companies paying contributors across borders must manage:

• Local employment law compliance
• Token FMV valuations
• Payroll tax withholding and remittance
• Employee payslips and recordkeeping

Toku automates all of this in a single global system, integrating payroll, token vesting, tax reporting, and compliance workflows.

For employees, that means peace of mind: every token you receive, vest, or sell is fully documented and compliant with both local and international regulations.

9. What’s the bottom line for crypto employees?

If you’re being paid in tokens, you’re part of a new generation of professionals redefining how work and ownership intersect. But with that innovation comes responsibility — especially when it comes to taxes.

By understanding when your tokens are taxed, how their value is calculated, and what elections you can make (like 83(b)), you can protect your earnings and plan strategically for the future.

Working with companies that partner with compliance experts like Toku ensures that everything — from your token grant agreement to your payslip — aligns with global tax and labor laws. That’s the difference between uncertainty and confidence.

Manage Token Compensation and Focus on What Matters

The promise of working in crypto has always been about freedom — the freedom to build global products, collaborate across borders, and get rewarded directly in the assets that define this new digital economy.

But as thousands of contributors have learned, that freedom comes with complexity. Paying, reporting, and taxing token income isn’t as simple as sending a transaction on-chain — it’s a regulated event that demands precision and compliance at every step.

The Hidden Cost of Complexity

Every crypto organization begins with the same vision: empower contributors with ownership. Yet without the right infrastructure, that vision can quickly get tangled in spreadsheets, tax filings, and unanswered questions from employees.

What’s the fair market value of a token that trades on five different exchanges? When exactly does vesting trigger taxation? How do you remit fiat taxes when compensation is issued in crypto?

These are the questions that slow down teams, frustrate employees, and expose companies to unnecessary risk. The truth is, running a compliant token compensation program requires time, expertise, and a global understanding of labor and tax laws — something most crypto startups never planned to specialize in.

That’s where Toku comes in.

A Trusted Partner for Crypto-Native Payroll

Toku was built specifically to solve the problems traditional payroll providers can’t.

As the only crypto-native Employer of Record (EOR) and Token Grant Administration platform, Toku integrates every piece of the compensation process into one seamless experience — from grant agreements and vesting schedules to payroll, tax withholding, and regulatory reporting.

When your organization uses Toku:

• Every token transfer is recorded and reconciled with the correct Fair Market Value (FMV) for audit and tax purposes.
• Taxes are automatically withheld and remitted in fiat, ensuring full compliance with local authorities.
• Employees receive transparent payslips showing both token and fiat income.
• Multi-jurisdictional teams remain compliant with local employment, benefits, and social contribution laws.

This isn’t just about staying compliant — it’s about empowering your team to focus on building, not bookkeeping.

For Employees: Confidence in Every Transaction

For crypto workers, Toku means finally having clarity and confidence in how you’re paid. No more guessing your taxable income or worrying whether your employer’s token structure is compliant.

With Toku’s infrastructure in place, you know:

• When and why you’ll be taxed;
• What value your taxes are based on;
• How your income is reported to the authorities; and
• That you’re protected against non-compliance risks.

Toku’s mission is to make token income as simple and secure as receiving a traditional paycheck — no matter where you live or what blockchain you’re building on.

Why Leading Web3 Organizations Choose Toku

Global crypto leaders such as Protocol Labs, Gnosis, Hedera Hashgraph, Safe, and Filecoin Foundation rely on Toku because compliance isn’t optional — it’s a competitive advantage.

A transparent, automated compensation system helps organizations retain talent, build trust with regulators, and protect long-term token value.

Toku’s solutions grow alongside your project, whether you’re an early-stage DAO hiring your first contributors or an established foundation managing a global team across 100+ jurisdictions.

Because in Web3, scale and compliance can — and must — coexist.

The Future of Work is On-Chain — and Toku Makes It Possible

As token compensation becomes the norm, organizations that master compliance will define the next era of crypto growth.

Don’t let tax complexity or regulatory uncertainty slow your progress. With Toku, you can issue token grants, pay contributors, and manage payroll across the world — all in one compliant, crypto-native platform.

Make your token compensation simple. Work with Toku today.