Although bitcoin may operate like coin and paper currency and can be used to pay for goods and services, no country accepts it as “legal tender,” the Internal Revenue Service said in its notice last week.

“Virtual currency is treated as property for U.S. federal tax purposes,” the notice said. “General tax principles that apply to property transactions apply to transactions using virtual currency.”

The guidance means that wages paid in bitcoin are subject to federal income tax withholding and payroll taxes and must be reported on W-2 forms. Businesses that accept bitcoin for goods and services will be taxed on the fair market value of the bitcoin payment as part of their gross income, the IRS said.

The fair market value would be calculated as the U.S. dollar value on the date payment was received.

Bitcoin traders are subject to capital gains taxes if they are holding the digital money as a capital asset, like stocks or bonds, the IRS said.

The IRS has “given certainty to dealing in digital currency,” says Steve Brecher, a senior adviser at the accounting firm WeiserMazars.

Bitcoin “miners” must include the value of any bitcoin they mine as part of their gross income, the IRS said.

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