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MetaMask, a popular Ethereum native non-custodial wallet, has updated its terms of use and now has the right to “withhold taxes where required”.

This change in their service is why the cryptocurrency community on Reddit is beginning to question ConsenSys’ decision to change their terms of use. 

It is not immediately clear what could have motivated ConsenSys to update its terms. However, companies regularly updated their terms and conditions to adapt to changing regulatory environments.

Specifically on tax obligations, ConsenSys, the team behind MetaMask, acknowledges that taxes must be paid as stated by applicable laws. However, in the new terms of use, MetaMask “reserves the right to withhold taxes where required”.

Over the years, MetaMask has evolved from being a wallet where users can receive and spend ethereum (ETH) and related tokens minted in Ethereum and other smart contracting platforms like Polygon or Fantom. 

It has gradually integrated several features, including direct crypto purchases using fiat currencies via providers like PayPal or direct bank transfer. 

Crypto tax regime in the United States

Considering MetaMask’s evolution, the change in wording in the wallet’s terms of use could also be a cautionary step in light of the fast-changing rules, especially those regarding cryptocurrencies. A level deeper and factoring in the new ramp where MetaMask users can buy cryptocurrencies directly from the wallet, this could directly apply to sales tax and not capital gains tax.

Depending on the user’s jurisdiction and applicable laws, MetaMask will now reserve the right to withhold sales taxes when required to remain compliant with its tax obligations. Therefore, every crypto purchase via MetaMask would translate to a withholding tax.

The sales tax will be separate from the capital gains tax. Crypto holders using MetaMask and complying with United States laws must file their capital gains tax separately. 

In the United States, cryptocurrencies are treated as property for tax purposes. This means that when token holders buy, sell, or trade crypto assets, they will likely have to pay capital gains taxes. 

The amount of tax owed also depends on how long the crypto in question has been held and the taxable income. Those who hold crypto for less than a year often pay higher income tax rates than those who choose to HODL. At the same time, crypto holders can deduct capital losses from capital gains up to a maximum of $3,000 per year.

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