Tag Archives: ITIN

Non-US Self-Publisher? Tax Issues Don’t Need to be Taxing

24 Feb

taxnote

CLICK FOR A LARGER IMAGE.

***UPDATE APRIL 2013: First of all, thanks to David for writing the post that never stops giving. We’re still going with comments over a year later, and I’d recommend every new reader take the time to read through them as your question has in all likelihood already been answered. Yes, I know there’s a lot of them, but people have a lot of questions. Secondly, you might want to note the comment from Lis Sowerbutts that describes her post-EIN dealings with the IRS. If they have withheld money from you in a previous year and you plan on submitting a US tax return to get it back, you MUST get an ITIN. If they haven’t withheld any money yet or they’ve withheld such a tiny amount you’re willing to let it go, an EIN is absolutely fine. It’ll do what you need. But if you plan on seeking a refund, you must get an ITIN. Anyone who can shed any further light on this, please do so in the comments. And good luck!***

***UPDATE MAY 2013: Commenter Yorgos has left an extensive and very helpful comment re: future US tax returns. Please read it here. ***

***UPDATE DECEMBER 2013: This post has step-by-step instructions and screenshots re: completing Amazon’s new ‘tax interview’—what you do AFTER you get your EIN or ITIN. Thanks to commenter Jackson for the tip. ***

OH FOR THE LOVE OF FUDGE.

That’s what this whole tax-withholding-for-non-US-residents makes me want to scream. Out loud, and repeatedly. But as I’ve said before, self-publishing your e-book on the biggest online retailer in the world is so easy, there had to be something like this to balance it out.

If you haven’t been keeping up with this ongoing saga, here’s a quick recap. I spent eight months, give or take, trying to get my own Individual Tax Identification Number (ITIN). I relied on the experiences of two other self-publishers, Sally Clements and Roz Morris, to help me out; the information the IRS provides wouldn’t help you find your way out of a small paper bag, let alone anywhere near an ITIN. Luckily once I had the damn thing, getting my full royalty payments and the money withheld from me in the year to date was easy and quick. But then, in the last few weeks, people started telling me that I didn’t need an ITIN at all—an Employee Identification Number (EIN) would’ve done the job, and an EIN was much easier to get. I posted about this possibility, and fellow Irish self-publisher David Gaughran volunteered to be the guinea pig—and got his EIN within minutes, and over the phone. This was extremely useful information, especially since another commenter (thanks, Janet!) told us that new IRS rules mean that starting this year, monies withheld will only be available for refund through the IRS—and not refunded automatically by KDP and CreateSpace, as they have been up until now.

I feared that most people wouldn’t read through all the comments on the original post, so I asked David to write a guest post for us here about how he got his EIN. Take it away, David…

“As many of you will know, Amazon and Smashwords are required by law to withhold 30% of the royalties earned by non-US authors until they settle their tax status. The commonly accepted method of doing so was going through the laborious process of getting an International Tax Identification Number (ITIN), which necessitates arcane form-filling, notarized copies of passports, embassy trips, fees, and inexplicable rejection (writers should at least be used to the last part). And indeed, this was the path I was on myself, up until yesterday.

In the last few weeks, I had heard some mutterings that there was an easier, quicker way, but hadn’t had time to look into it. After Catherine’s post on Monday, suggesting that self-publishers might be able to get an Employer Identification Number (EIN) instead, which will also do the trick, I decided to give it a shot.

First things first: I’m no tax expert. In fact, the entire subject turns my brain to soup. And I know as much about the law as this guy. All I can explain is how I got my EIN in ten minutes and how you should be able to do the same.

One final caveat: this only applies to self-published authors who are publishing through their own company (and that company must be set up outside the US). While the IRS doesn’t appear to ask for proof that you have actually established your own publishing company, I’m sure there are all sorts of reasons why you shouldn’t commence this process until you actually have.

1. Call the IRS at +1 267 941 1099

This is a direct line to the dedicated unit in Philadelphia that deals with foreign entities (that’s you) who need an EIN. Press 2 on the computerized menu to get through to an operator. While I’ve heard it’s possible to get your EIN through some embassies and consuls, that certainly doesn’t apply to all of them and this number will work for everyone. Note: they won’t take a call from anyone using a “speakerphone”. If you are using Skype on your laptop, have a set of headphones plugged in before you call, to avoid an undignified scramble around your apartment. Finally, while there is an online facility for doing this, foreign entities can’t use that.

 2. Tell them you’re applying for an EIN for a foreign entity.

They may ask if you are a legal officer of the company or some such, I said that I was a sole proprietor, and the owner of the business, which satisfied them.

3. There’s a 50% chance that they will tell you that you need Form SS-4

You do not want to go down this path, which requires form-filling, fees, delays, and somehow locating a fax machine. If this is what they tell you, politely end the call, and call them back. I only had to do this once, and then got someone a little more helpful.

4. Give your details

They will ask for your name, mailing address, phone number, the name of your company, and the country it was incorporated. This will involve a lot of spelling and repetition, but make sure all the details are correct.

 5. They will ask if this is for compliance with withholding

Say “yes”.

6. They will ask if this is for e-books

Say “yes”.

 7. They will give you your EIN!!!

After confirming all your details, they will give you your EIN right there and then. Resist the urge to shower your helpful IRS employee with virtual kisses. Also, it’s probably best not to try and sell them your book. Write your EIN down somewhere safe, then save it on your computer, upload it to Dropbox, copy it to a thumb drive, email it to yourself, carve it on the biggest tree in your garden, and consider getting it tattooed somewhere private.

Submitting the W8-BEN

If you follow these steps, you will save yourself time, money, and a whole load of heartache. All you have left to do is fill out the W8-BEN (you didn’t really think you were going to avoid those forms altogether, did you?).

I have copied that advice here, as it requires a little modification now that you have an EIN rather than an ITIN.

First you need to download the W8-BEN form, and print it out. The official instructions for filling it out are here, but the below might be a little more helpful. Note: you will need one copy each for Amazon KDP, CreateSpace, and Smashwords.

Part I (You must fill out everything in blue ink)

1. Your full legal name.

2. The country you live in/pay taxes in (don’t abbreviate anything).

3. Type of beneficial owner: Check the box that says “Individual” (and nothing else).

4. Your physical address/street address (don’t abbreviate).

5. Your mailing address (only if different).

6. Select the “EIN” box, and fill your number in.

7. Your foreign tax number (i.e. your tax number in your country of residence. I actually forgot to include this, and some say it doesn’t matter, but there’s no harm putting it in).

8. Fill in your KDP Publisher No. (in Account Settings, bottom right of screen) on one form, the email address associated with your Smashwords account on the second form, and your Createspace Member No. (on your dashboard) on the third.

Part II (only fill out the parts indicated)

9a. Tick the box and write your country in the line provided (again, don’t abbreviate).

9b. Tick the box and fill in your EIN.

10. This bit will vary depending on your country.

  • For the first section (after “Article”), you will need the appropriate number for your country. It’s “XII” for Canada, “12” for the United Kingdom, and Ireland is “12” also. You will have to check the number for other countries here (and come back and tell us in the comments to save the next person doing so).
  • For the second section (the % withholding rate), fill in 0 (zero) for Canada, Ireland, or the United Kingdom. I believe Australia is 5, and you can check other countries here (Publication 515, Table 1).
  • For the third section (specify type of income), write “Royalties-12, Other”.
  • For the final section (Explain the reasons…) write “Beneficial Owner is a resident of…” and then write your country (and don’t abbreviate, people have been rejected simply for writing “U.K.”).

Part IV (skip Part III altogether)

Sign your name, date it, and write “Self” over “Capacity”.

And you’re done! While you might feel like cracking out the whiskey at this point, I recommend posting everything off right away. You will need to send a separate W8-BEN (an original, not a photocopy!) to each of the following that you have published with:

  • Amazon KDP: Attn. Vendor Maintenance, PO Box 80683, Seattle, WA 98108-0683, USA.
  • Smashwords: Tax Compliance Dept., 15951 Los Gatos Blvd., Ste 16 Los Gatoes, CA 95032, USA.
  • CreateSpace: 8329 West Sunset Road, Suite 200, Las Vegas, NV, 89113, USA.

I sent the forms off, by express post, with a simple cover letter stating I had attached the W8-BEN for compliance with withholding. It takes them a few weeks to process, but within a month or so, they should stop withholding your royalties (hooray!).

Under the old way, the advice was to wait until you had accrued a certain amount of royalties. That no longer applies, and you are recommended to apply for an EIN right away. Many self-publishers (like me) were so aghast at the laborious process that they put it off, knowing that they could apply for a refund of the taxes withheld at a future point. Apparently, new legislation means that you will no longer be able to do this. As such, you are advised to commence this process as soon as possible.

I would like to thank Roz Morris, Sally Clements, and my gracious host for doing all the real legwork on this issue, and whoever first discovered that you could simply phone up and get an EIN. This post merely builds on their hard-won knowledge.

Finally, if you are reading this at some time in the future, first of all, sorry for screwing up the planet, and second, you might want to check you are using the up-to-date W8-BEN form on the IRS website.”

And thank YOU, David!

So, to recap:

  • If you have an ITIN, there’s no need for you to be reading this post. Unless it’s for procrastination purposes. If so, we all understand.
  • If you have already applied for an ITIN and are waiting for it to arrive, my advice would be to wait a little bit longer. If it takes longer than a month from now for your ITIN to arrive, start chasing an EIN instead.
  • If you haven’t applied for anything yet, apply for an EIN. This will require you to have a company, even if that means just registering as a sole trader. Do you have to actually publish through this company, as in, do you have to purchase ISBNs and put the name of your company on your books? I highly doubt it. But I think filling out a companies registration form and being on the phone to the IRS for a few minutes is considerable less headachy than the ITIN application process.
  • Whatever you’re doing, hurry up. You can no longer get withholdings back for the year to date without applying to the IRS for a tax refund (apparently) and so my advice would be to do this before you release your book, if possible.
  • Good luck!

About David Gaughran:

David is the author of the South American historical adventure A Storm Hits Valparaiso and the short stories If You Go Into The Woods and Transfection, as well as Let’s Get Digital: How To Self-Publish, And Why You Should. He runs the popular publishing blog Let’s Get Digital, the history site South Americana, and has a regular column for Indie Reader.

UPDATE OCTOBER 2012: I know there are a lot of comments on this post now, but please: take a few minutes to read them before you add yours if yours contains a question about applying for an EIN or an ITIN. I say this because many of the commenters have taken the time to generously answer questions already asked and when you re-ask a question that’s already been asked and answered, all you are doing is letting us know that you haven’t bothered to spend your time reading what’s already been posted. Please, if you have a question that you feel hasn’t been answered in this post, read through the comments below before asking it. Thank you and good luck getting your EIN/ITIN!

US Tax Withholdings and Alphabet Soup

20 Feb

[UPDATE: Please make sure to read the comments on this post too, as fellow Irish self-publisher David Gaughran explains how he got his EIN—in minutes.]

[UPDATE #2: Author Melissa Hill advises me that Irish residents might be better off contacting the US Embassy in London. I guess it doesn't matter which embassy you contact anyway, but it seems that London is better equipped to deal with these kinds of applications/enquiries than the Dublin one is.]

[UPDATE #3: Commenter Janet advises that starting this year, new IRS rules will mean that companies such as CreateSpace, etc. WON'T be able to refund withholdings from the current year. That will mean that any monies withheld will go straight to the IRS, and you'll have to apply to them to get the refund. If getting an EIN/ITIN is rocket science, filing tax returns with the IRS when you don't live in the US is string theory and chaos theory combined; my advice would be to get your EIN or ITIN before you're due a single royalty cheque, if possible.]

You may recall that before Christmas I posted about the saga of obtaining a US Individual Tax Identification Number (ITIN) so that I could receive my royalty cheques from the likes of Amazon, CreateSpace and Smashwords without them withholding 30% from me, which is what they’re obligated by law to do if there’s no tax information provided. Since then there’s been a couple of comments left on the post saying that self-published authors outside the US don’t need an ITIN, only an Employer Identification Number (EIN), and EINs are far, far easier to get.

I’m certain this is true, not only because of the commentors but because I know writers who aren’t self-published who use it for things like getting paid for features from US publications. I’m not an expert but this is the way I think it works:

An ITIN is for earning royalties in the US as a non-US resident. Let’s say you were published in the US by Penguin Books, for example. Other companies are distributing the book to stores and websites, and Penguin are collecting the money because the book is their product, and you’re entitled to royalties from each sale. To get paid them, you need an ITIN. But with a self-published book, the product is yours. Amazon KDP, CreateSpace and Smashwords are just distributing it and then paying you; there’s no middle man, no entity in between who can claim it’s their product. The royalties are really just profits. Thus you are just doing business in the US. You’re just selling a product. And in order to get your 100% instead of seventy, you merely need an EIN.

So how do you get an EIN? You can apply online at the IRS website, although it’s a “live” application service and so can only be used during certain times of the day (specified on the site). You also apparently have the option of phoning your nearest US Embassy where you might end up with your EIN before you hang up the phone.

You may have to, ahem, pretend that at some stage in the future you might take on some staff…

(Well, when you start selling a gazillion e-books a second, you are going to need an assistant, right?)

What if you have an ITIN? Well, like me, you’ve just done some form filling and IRS-stressing you didn’t really have to, but hey, it’s done now. It’s not wrong to have an ITIN, it’s just you could have got an EIN instead. The people who know this seem to be freaking out all over the interweb, leaving excitable public service announcements on other people’s blogs to alert them, and while I love when useful information is shared, I don’t really see the need for a full-on freak out about this. Getting an ITIN is not difficult—what is difficult is trying to do it with the information the IRS provide, and you don’t have to because plenty of self-published authors have blogged about how they got theirs. (Including me.) Plus, whenever you get your number, be it an ITIN or EIN, you get refunded all your withholdings from the year to date, so waiting a few weeks isn’t going to make a difference unless it pushes you into a new calender year. My point is, calm down.

If you have an ITIN, you shouldn’t even be reading this because your tax situation is already sorted. (But of course I’m glad that you’re here!)

If you’re in the processing of applying for it, just wait. You’ll get all your money back anyway.

But if you haven’t started the process at all, get on the phone to your nearest US Embassy or follow the link to the online application, and then come back and tell me how you got on.

The ITIN, 30% Withholding, Tax Refund Saga: An Update

4 Jan

Back in November I shared with you the long and headache-inducing adventures that was applying for an Individual Tax Identification Number (ITIN), the magic digits that stop the likes of Createspace, Amazon KDP and Smashwords withholding 30% of everything you earn and passing it onto the United States’ Internal Revenue Service on your behalf. If you need a reminder, it took me eight months, three attempts and countless stress balls—and that was just to get the number. Once you have that, you have to send it to each of your self-publishing companies on a form called a W-8BEN.

As I said back then:

“If you submit your ITIN successfully and use the W-8BEN that has an affidavit on the end, you will be refunded all the money the company has unnecessarily withheld from you so far in the current calendar year. You can see why, despite starting the process in April, I was starting to get nervous as spring turned to summer and summer turned to autumn. Again, I used the instructions on Roz’s Nail Your Novel blog for filling out the form. Make sure you use the proper form – you want the one with the affidavit of unchanged status at the end, which you can find here. You don’t need to include anything with your letter, but you do need to put something in the “Reference” line of the W-8BEN form that will identify you to the company.”

I sent off a W-8BEN to Createspace, Amazon KDP and Smashwords back on November 4th.

On November 16th, I got an e-mail from KDP confirming that they’d received the form. Then on November 29th, RESULT! A cheque from KDP for every last cent they’ve withheld from me since January 1st 2011.

On December 5th, my monthly cheque from CreateSpace arrived—except with some extra. It was my payment for the month, along with all my withholdings from January 1st 2011. Again, RESULT!

So now, in 2011, I had received 100% of all my earnings from CreateSpace and Amazon KDP. But I still hadn’t heard a word from Smashwords. One day I noticed that on my account information page on Smashwords, there was a notice saying they had received my ITIN and my withholding rate was now set to 0%. Great, but what about my refund? I e-mailed them, and yesterday I got this back:

“We do not hold onto the tax withholdings, but send all the withholdings to the IRS when we pay authors.  This means that we collected and paid your withholdings when we sent your last payment. The IRS requires us to send them the withholdings within 10-15 days from the time we pay you.  Unfortunately, we don’t have the withholdings and you will need to reclaim them from the IRS.”

So… no refund from Smashwords. I’m sure what they’ve told me is true, but why is this different with them than it is with Createspace and Amazon KDP? I think my refund is only around $200—I don’t sell a lot on Smashwords, never have—but the fact that it’s a small amount actually makes it worse, because it would have to be a significant amount for me to even consider going through the additional hell of applying to the IRS* for a refund.

Createspace and KDP made it so easy; they gave me back the money straightaway.

So why is Smashwords different? Anyone know?

*I was considering using a service like TaxBack.com until I found out that in order for you to sit back and relax while they take care of everything, you have to sign a power of attorney form and change your address with the IRS. Your only other option is to fill out a bunch of stuff and get them to “prepare” it for you (check, presumably) for which you pay a fee of around a hundred dollars. Considering how priceless I consider an absence of stress to be, it’s just not worth it.

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