Wednesday, 29 January 2014

How not to give the IRS 30% of everything you earn! - Cally Phillips

This information applies to those of us who DON'T live in the US - or as we are prosaically known by Amazon etc ALIENS.   So if you are an alien, read on.  I've put it up just in case there is anyone out there who still does not know that if you aren’t on the ball then selling either books (Createspace) or ebooks (KDP) on Amazon in America will result in them taking 30% of your royalties… I thought I’d just run through this little lesson in confusion. It's not simplez. You do have to keep your wits about you, but then it's saving you money so...

Step One.  In order NOT to pay tax to the IRS (that’s the US Tax service) you first have to register with the IRS.  Yes, I know… what can I say? It is the most ridiculous thing in the world but then if you don’t, you’ll be giving 30% of everything you earn to the US Tax system. And since you are already giving at least (probably) some 30% to Amazon (and therefore corporate America) you may want to think twice before giving away any more.

So. You need to gird your loins. It’s not what one would  call TOTALLY straightforward, but if you ever filled out benefits claim forms in the 70’s or 80’s (or more recently tried to get any kind of pension entitlement form filled out) then you’re well on the way there.  Get a large beverage. Put on your reading glasses (for the small print) and do whatever you need to do to tell yourself you’re not going to ‘lose the plot’ for 20 minutes and you’re ready to go.

Step Two. Download the Form.  I always think of this as a FFS form, though it’s actually called a FSS4 form.  I’d seriously advise that you also download the INSTRUCTIONS because without them you’ll spend time wondering how to fill in all sorts of boxes only to realise later that because you are NOT paying tax to US you don’t actually need to. Sigh. Again.

Step Three.  Okay. Got the form. It looks like this


And you need to fill in only certain lines. (They call them LINES) 

Step Four.  Decide whether you are a BUSINESS or an INDIVIDUAL.  Well, really, you need to decide that even if you are an individual you are actually a BUSINESS because it’s much quicker and easier. And if you are an author then you should be SELF EMPLOYED as such and in that case YOU are your business.  What of it? Well, this means that you can apply for an EIN.  It asks you that in line 7b. 

Step Five.  Let’s run through those first lines. I’m assuming you are capable of filling in your (or your business) name, address and post code etc.   So that’s got you from Lines 1-6.  Oh, you must write UNITED KINGDOM in 6  - not UK. They can’t handle shortening things. Not the IRS.  (more cack handed irony?)

Step Six.  Deep breath. Fill in EIN in line 7b.  Now you are committed (and probably should be)

Step Seven.  Line 9. You have to decide what you are.  Probably other if you are a self employed or limited company (UK)

Step Eight.  Line 10. You need to fill in COMPLIANCE WITH IRS WITHHOLDING REGULATIONS for this. Ignore everything else.  You can then whizz down to line 18 where (assuming it’s the case) you can let them know you HAVEN’T applied for an EIN before – or their system will blow up.
Then you have to SIGN on the non dotted line and you’re good to go.
NOW. How to actually get it to them? Well, if you are in a hurry and have the skill to work out international numbers you can call them and talk through the ‘lines’ you filled in.  Personally I’m too mean to pay international rates.  If you have a FAX machine (wow, do they still exist) or can work out how to fax from your computer (and can work out the international code) you can do that. OR you can simply send them the completed form in the post.  The first option takes as long as a phone call. The second option takes about 4 days. The third option takes about 4 weeks. So it’s up to you.  How quickly do you need your EIN number? 

Word of warning. When you DO get the number you should put it somewhere safe, probably tattoo it on your forehead or something because if you LOSE it or can’t REMEMBER IT ever you will incur the full wrath of the IRS and that’s unimaginable.
Once you’ve completed these several stages you have up to four weeks to have a nice cup of coffee, recover from the procedure and prepare for...  

PART TWO of the great adventure.  This is the form you have to fill in for Amazon in order that THEY KNOW you are not a US taxpayer and will therefore not take off the 30%. 
This form is called W-8BEN And you do have to fill it in accurately or they’ll kick it straight back at you.  Courteously of course but none the less, it’s a pain.
So. This form. Also has downloadable instructions.  Here’s the form in all its glory.

Part 1 goes along much like the other one. YOU are the beneficial owner (go figure?) and you are probably either an individual or corporation (company)  Fill in your name and address – remember UNITED KINGDOM not UK and the important line which you can’t fill in till you get the response to your FSS form is LINE 6.  Here you need to fill in the NUMBER they send you and check the EIN box.
Part 2 you just have to check a and b and then you’re good to go.  Sign it under pain of perjury and this one you have to mail to them. And wait.

Oh. And of course you have to do this SEPARATELY for Kindle Direct Publishing AND CREATESPACE. They are fundamentally different businesses and so you have to deal with each one direct.  But after all that fun filling out one W8-BEN why wouldn’t you want to fill out two?  Fortunately, the IRS FSS form only has to be filled out once.  When you become a TIN (which is effectively just the EIN umbrella name) you are that number for EVER.  So, remember, don’t lose that number.!

For those who want to go into more detail,  here is the CREATESPACE information direct from source.  (Well hidden in the royalties section)
NON-U.S. PUBLISHERS

Tax Withholding
Tax withholding is calculated based on the gross amount of your payment, before taking into account any costs associated with receiving payment.

Amazon.com, CreateSpace eStore, and Expanded Distribution
The U.S. IRS requires CreateSpace to collect up to 30% from royalty payments issued to non-U.S. entities. The tax withholding will automatically be deducted from your royalties when they are paid.

You may be eligible for a reduced rate of U.S. tax withholding if your country of permanent residence - the country where you claim to be a resident of for purposes of that country’s income tax - has an income tax treaty with the U.S. The list of tax treaty countries and applicable rates can be found on pages 40 and 42 of the IRS Publication 515, in the “copyrights” column.

Amazon Europe
If you provide a Form W-8BEN to certify that you are a non-U.S. person, U.S. tax withholding will not be applied to your non-U.S. royalties from Amazon Europe sales. If you do not certify that you are a non-U.S. person, you may be subject to U.S. taxwithholding on your Amazon Europe royalties.

Requirements
CreateSpace is required to collect a Form W-8BEN from all non-U.S. publishers who are receiving royalties. The purpose of the form is to:

  • Establish that you are not a U.S. person
  • Claim that you are the beneficial owner of the income for which Form W-8BEN is being provided or a partner in a partnership subject to section 1446; and
  • If applicable, claim a reduced rate of, or exemption from, withholding as a resident of a foreign country with which the United States has an income tax treaty
Steps to Submit Form W-8BEN 

1. Complete Form W-8BEN using IRS W-8BEN Instructions  (see examples below).
2. Sign the form in Part IV - an original signature is required
3. Write your CreateSpace Member ID in the top margin of the form to match it to your account (found on your Member Dashboard)  
4. Send the signed original version to:
CreateSpace
c/o AP Tax
PO Box 80683
Seattle, WA 98108-0683
You will receive confirmation by email once your form has been processed. Forms received on, or before the 10th of each month will be processed for regular month end payments. Forms received after the 10th will apply to the following month’s payments. Refunds will not be issued for taxes withheld.

Examples of Completed W-8BEN Forms 

Tips for successfully submitting your W-8BEN

  • Write the Member ID in the top margin of the form. Without this information, we’re unable to process your form.
  • If you are applying for a reduced rate of U.S. tax withholding as described above in “Claiming a lower rate of withholding”, a U.S. TIN is required.
  • Be sure to enter your information in the correct fields and don’t abbreviate country names.
  • Provide an original ink signature in the appropriate section (we’re unable to accept copies).
  • Sending the form via regular mail can take several weeks. We recommend sending the form with tracking information to confirm its arrival to our office.
Applying for a U.S. TIN (Taxpayer Identification Number)
A U.S. TIN may be an EIN (for individuals and business entities) or an ITIN (for individuals only). We do not require non-U.S. persons to provide a U.S. TIN. However, entering your “Payee Country” and selecting a “Business Type” in the Royalty Payment Profile is required before royalty payments may be initiated.

For Individuals and Non-Individual Entities: Employer Identification Number (EIN)
An EIN may be obtained by filing Form SS-4, Application for Employer Identification Number. The application may be completed over the telephone in one session by calling (267) 941-1099. The application may also be completed by fax in approximately 4 business days and by mail in approximately 4 weeks. For more information, see:

How to Apply for an EIN 
Form SS-4 Instructions
Example Form SS-4

You can get the forms from the links here and then just fill in another W8-BEN for KDP when you get your EIN through.


Enjoy. When you've completed this, relax with a good book for a while and wait for the royalties in their entirety to just flood in!!! 

This horror was brought to you by Cally Phillips.



14 comments:

Mari Biella said...

Thanks for this, Cally. I've been putting off the IRS nightmare, but I suppose I'll have to do it eventually. It'll be easier with your step-by-step guide. Then I can indeed sit back and watch my royalties flood in (ha!).

madwippitt said...

This is brilliant Cally, thank you for posting it. Not having the slightest idea about how to do this I too have been putting it off.

julia jones said...

Well done Cally - thanks so much

Nick Green said...

Sacre vache. They are worse than HMRC, aren't they?! And I thought self-assessment was complicated.

Amazing job!

Pauline Fisk said...

Simply brilliant, Cally. Like everybody else I haven't faced this yet. And now I maybe will. Thank you.

Bill Kirton said...

Great contribution, Cally. I did mine a few years back now and, like others, was dreading it. It's worth the hassle, though, and you only have to do it the once (unlike the annual Inland Revenue thing here, which seems more complicated every year).

Catherine Czerkawska said...

This is a great post, Cally, but I'm so glad I did it a while ago! I phoned them. It cost a few quid and it was scary, but quick. The only other thing I can add is that somewhere on that dreaded W8BEN form there is an option to put your UK Tax ID number. They don't demand it, but if you have one, it proves that you are a UK taxpayer (and also that you're self employed, if you are) It seems to speed things up a bit! Good luck everyone.

Lee said...

Cally, this is indeed very helpful for non-US persons. One point: I'm under the impression that any US taxes withheld can be reimbursed, though I suppose you need a US TIN. Only thing is, it can take quite a while. If I'm wrong, please correct me. (I'm a US citizen, so other rules apply -- and I actually have had a certain amount of bother convincing Amazon as well as local financial institutions that I didn't need a W-8BEN but a different form!)

Also, if you have IRS questions, the US Embassy, at least here in Germany, has a department which can be very helpful with advice over the phone. If you can actually get them on the phone, that is...

;-)

Kathleen Jones said...

It sounds awful! I'm a limited company so that is bound to be even more complicated, but I'm beginning to earn money in the US and I don't want them to take money off me that they don't deserve! I'm already taxed in the UK.
Lee - glad to know it's as complicated for US citizens as it is for us!!! Good luck!

Dan Holloway said...

incredibly helpful, thank you! To echo Lee's question - do you know how long it takes to geta reimbursement of previously withheld amounts?

Susan Price said...

Cally - thank you! You have provided a sorely needed public service!

Jan Needle said...

try the jan needle option. don't earn any money in america. and live on christmas puddens.

thanks, cally. wonderful as ever.

cally phillips said...

Glad this post was of use to people!
Kathleen - it's no harder as Ltd company actually (you don't have to decide if you're an ein or itin you ARE an ein and beyond that you just have to ignore more questions not fill them out!)
Catherine is right. If you aren't phonophobic and have the billpayers permisssion for an international call you can do IRS in one phone call!) Then it's just the Amazon form to fill out twice (once for embooks and once for createspace)
Lee and Dan - sorry, my expertise doesn't extend to shutting the stable door once the horse has exited stage left. Shame on you for giving up your hard earned money to the IRS (if you have!!)
Jan is right of course - don't sell in america and live off Xmas pud (except for me - if I eat more than a teaspoon of Xmas pud I am likely to die so quickly that I won't be needing to fill in any forms ever again. Unless there is something about death and the afterlife I've missed in the small print!
Anyway, into every life a little form filling must fall and if it's saving money, surely that's a good enough reason to GET TO IT!

Katherine Roberts said...

I got an ITIN rather than the (supposedly easier!) EIN, and after doing the W8BEN thing to stop withholding I also filled in a simplified US tax return (downloaded from the IRS website) to apply for my previously withheld tax to be reimbursed. I posted this off to the IRS and a cheque arrived a few months later. All very efficient.