The Only Certainty

Now, they say that there are two certainties in life. One of them is death.

That’s right, we’re talking about taxes.

Authors are technically self employed and as such are responsible for paying their own taxes. The system for paying taxes varies slightly depending on your country of residence, but you’ll find all that information on your tax return form, so I’m not going into it here. But bear in mind that even if your income from writing is only a small portion of your income, you still need to register with HMRC as self employed and will still need to pay taxes on any income from being self employed.

What I am going to talk about is particularly relevant to those authors in the UK (or any other country which has a tax treaty with the US), so sit up and pay attention unless you want to loose a third of you income to the US tax system. 

In the US the standard tax withholding rate for non-US residents is 30%. This means that 30% of your royalties will be withheld for tax purposes. This is pretty easy to avoid if you take the time to set yourself up with an individual tax identification number (ITIN) which you can then use on your IRS forms to claim a reduced rate of tax. Bear in mind, you’ll still have to pay tax in the UK on the full 100% of those earnings, and not just the 70% that you received, so you don’t want to be paying more than you have to.

Getting and ITIN can seem a scary and confusing prospect, and to be honest it took me a while to get my head around it too. But it’s actually pretty simple.

The first thing is to get yourself a supporting letter from either Amazon or Smashwords which states that you will be receiving royalties from them. Smashwords will only give you this letter when your earnings reach $10. If you have a traditional publisher then they can provide you with the required letter.

Once you have your supporting letter, you will need an IRS Form W-7, which are available, along with instructions, online at the IRS website. This completed form needs to be sent along your support letter and photographic ID, either a passport or driving licence, or USCIS documentation (if you are a student studying in the US) to the IRS. If you are in the UK then you send it to the IRS at the American Embassy, 24 Grosvenor Square, London W1A 1AE, United Kingdom. If you are in another country then send it to the appropriate Embassy in your own country. The Embassy will send your passport back to and the W7 will be processed and hopefully you should get assigned an ITIN within a few months.

This is by no means the end of the process though.

You now have an ITIN which means that you can start the process to claim a reduced tax rate for US earnings.

This time you need a W-8BEN form, again, available along with instructions on the IRS website. Please note that you can only claim this reduced rate if your country of residence has a tax treaty with the US.

Once you fill our the W-8BEN form you send it to your publisher, who acts as a withholding agent when it comes to tax, and remember to send it to all of your US publishers, whether you are self published or with a traditional publisher.

And there you go, you will now get 100% of your royalties. Just a shame that you still have to pay income tax on it in your own country.

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