Monday, 16 January 2012

How do I Claim a Tax Refund on Royalties Earned?

You’ve earned a good income from home via royalties from books sold overseas, only to discover a third of your earnings have been withheld in tax. How does the writer claim back this withholding on royalties?

Get More Money by Claiming Tax Back

This article focuses upon the writer living outside the US earning royalties from overseas agents such as Smashwords,, Barnes and Noble, Sony and Apple, etc. The writer may notice that a third of the royalties earned in the US will be withheld. For example if royalties earned are $90, $30 of this will be held back and you will receive $60. This is because, in accordance with the US Tax rules, royalties paid to a writer living overseas (or any entity, for that matter) are subject to withholding of earnings in the US.

Get Money Back on Royalties from the IRS

Getting Tax Back on Earnings
If you are a non-resident alien in a country that has a tax treaty with the US, you are eligible to reducing your tax withholding. In order to claim the earnings withheld, the writer must complete a form W7 (downloadable from the Internal Revenue Service Website) in order to get an individual taxpayer identification number, or ITIN. Only then can you file a W8-BEN to each withholding agent.

Guide to Fill in the W-7 Form

To fill in the W7 form, you will need your personal details, your UK (or country of residence’s) foreign tax id number and supporting documentation. Examples of supporting documents are a valid passport, civil birth certificate, military ID card, VISA issued by the Department of State or driving license. You will need to have a certified copy of the deed made which may accrue a small fee and take a few weeks to issue to you. This is because the deed must be officially certified by the issuing body. Photocopies will not be acceptable.

Reason for filing a W-7 will be 1(d): book royalties. The treaty number (if you are from the UK) is 12.

Letter from Withholding Agents

You will also need a letter from at least one withholding agent. A withholding agent is the party from which you earn monies (in this case, royalties). the letter must exhibit the official letter head, declare you are earning royalties, and be signed and dated by you. KDP and Createspace provide this documentation in PDF which you can print. Also supply a copy tax return if you have one - a form 1042-S.

Once received, send the supporting document along with the W-7, and an ITIN number will be allocated to you in around 6 weeks’ time. Don’t worry if your application gets rejected; you can still claim royalties back; you just need to file for a tax refund after the end of the year. Note, indicate if you have had a temporary taxpayer identification number (TIN) or Employer identification number (EIN).

Author’s Guide to Getting Royalty Payments Released from Withholding

Once you have been given an ITIN number, you will need to fill in a W8BEN with the ITIN number included, sign and date (in blue ink). A hard copy of the W8 form must be issued to every agent that withholds your earnings overseas. Examples of the withholding agent might be, Smashwords, Apple, Createspace and Sony etc. This process must be repeated every three years.

Amazon will provide the writer and the IRS with a Form 1042-S per year, detailing US taxes that have been withheld and remitted to the IRS. Note, monies withheld can only be claimed back in the current year it was withheld.

W8BEN with Affidavit of Unchanged Status

If this is not the first year of claiming tax withheld in the US, then you will need to complete a W8BEN stating that your status has not changed since the previous tax year (be sure that it has not). This form W8BEN is the version revised in February 2006, (not February 2014). Look for a declaration field that you can state that your tax status remains unchanged since the previous tax year. This field can be found at the bottom, under: Affidavit of Unchanged Status. Amazon is quite specific on this matter. Sending the correct form will prevent delays in your tax forms being processed.

Oh, and also put your publisher code and/or member ID within the margin of the top of the W8BEN form.

Extra Funds for Authors Via Claim of Tax Treaty Benefits

Authors earning money from royalties overseas may notice a third of these earnings will be withheld according to the US tax rules. So long as you are resident in a country that has a US Tax Treaty, you can claim tax back on these earnings. First, you will need to apply to the IRS for an ITIN number via a W7 form. Once the ITIN number has been allocated to you, you need to issue a W8-BEN to every agent that withholds these earnings. The process must be repeated every three years. Be sure to issue the correct W8Ben form.

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  1. You have an excellent blog here, very informative.

    1. Good to hear my info comes in useful for others.

  2. It's a nice blog to provide a good information. Hope more people reaching your blog because you are sharing a good information. I bookmarked this blog further more useful information. Thanks for sharing this..........
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    1. Thanks for your vote! Self publishing is changing all the time. Will try to keep this blog up to date!

  3. Valuable for information.. Is there any further reading you would recommend on this?

    PPI Refund

    1. Hello.
      The IRS's online forms and guidance notes are invaluable. They take a bit of reading, but is worth the trouble. Createspace also have a useful guide on their website. Just look for their tax information interview guide on this link
      Good luck!