US Withholding Tax on UK Self-published Author Royalties – How To Avoid It
One of the frustrations when publishing and selling books on Amazon, especially when using CreateSpace, is the fact that the United States withholds 30% of your earnings for tax reasons.
Within this short and snappy article I explain how US Withholding Tax impacts us as self-published authors, and more importantly, the steps you need to take to get around it. After all, 30% is a lot of royalty to lose to the Americans! Let’s not allow it to happen to you.
Any company based in the United States (including Amazon and Smashwords) are required by law to withhold 30 percent of your acquired royalty earnings until you complete your tax information. The end result is that you need to obtain what is called an Individual Tax Identification Number, or ITIN to use the short version.
Before I found the shortcut to obtaining this little devil of a number, my bookkeeper and I literally spent hours trying to work out how to obtain one. I won’t bore you with the details of the lengthy process we went through to obtain one, including details of the accountancy fees I had to pay for ‘international advice’, but what I will do is give you a short, step-by-step process for getting hold of your own.
Once you have an Individual Tax Identification Number, you can then input this into your Amazon CreateSpace account and away you go – you avoid having to pay the US Withholding Tax of 30% on your royalties earned.
US-based companies are required by law to withhold 30% of your earned royalties until you settle your tax information. To do that, some international publishers would go through months of filling forms, paying fees and visiting the American embassy to get an Individual Tax Identification Number (ITIN).
Step 1: Obtain your own Employer Identification Number (EIN)
As an International (outside of the United Sates) author, the American Tax Office who are otherwise known as the IRS, will classify you as a ‘small business’. Because of this fact you can obtain the Employer Identification Number by actually phoning up the IRS and asking for one. Once you have an EIN you will no longer fall under the 30 percent withholding tax rules. Happy days!
All you need to do is give the United States IRS at call (+12679411099), tell them you are an International author who wants to sell books on Amazon CreateSpace and you would like an EIN.
If the US IRS Office asks you for your company details, just tell them your company number (if you are a Limited Company or a Limited Liability Partnership). If you are not a registered company just yet then tell them you are a sole trader.
The IRS may ask you for a form which is called an SS-4 form. If they ask you for this form, tell them you have left it in your office at work and it is unavailable at this present time.
When the IRS call operator asks you for further details regarding your situation, just provide all of the information they require and make sure the information you provide is accurate and correct, as this will save you hassle and time in the long run.
Once you have provided them with all of the information they require, they will provide you with an EIN. This will then enable you to avoid the US Withholding Tax which currently stands at 30%.
Step 2: Go to Amazon and Submit Your Tax-Information
The next step is to update your tax-information on Amazon in the relevant section where it requires the EIN to be input.
First of all, within your account area click on ‘Edit Account Settings’. Now proceed direct to the ‘Tax & Business Information’ and select ‘Edit’. You can now complete your EIN in the ‘Tax Identification Number’ section. Once you SAVE the information your are complete.
If you are using Smashwords or any other online publishing application that is US-based, just follow their procedures online to identify where to input the EIN. If you have any problems, just contact their support desk.
For Amazon Kindle you are required to undergo a tax interview. Don’t worry, this interview is carried out online and is an automated process which includes tick box fields and sections for you to enter all relevant and required information.
First of all, within your account area you will need to select ‘Complete Tax Information‘. Within the online interview you will be asked for your US Tax Identification Number. When it asks for the TIN, simply select YES and then enter the EIN in the TIN field before clicking submit.
After submitting the TIN online it usually takes 7-10 days to become approved and then your 30% royalties will no longer be withheld.
Amazon’s Online Tax-Interview screenshot.Simply select YES and then enter your EIN.
A word of advice: I advise that you go through the above process as soon as possible and even before you publish your book. The reason for this is simply because it can be a real pain in the neck to try and get your 30% royalties back later on – trust me, I know!