By guest blogger, Christina Attard
I will begin with one of the scariest words in the English language: taxes.
Ok, it is a word that I enjoy because it signals an oncoming mind puzzle of numbers, but for many writers, math is not a strong suit.
This past week, I received an email from an author friend of mine who, like all good authors, recently moved to a remote writer’s retreat without phone or internet service. (She waits for a weekly trip to the public library to catch up on emails.) I thought that her dilemma might apply to other writers in a similar situation and wanted to share the story.
She received an offer to publish her second book from a small press in the United States. The catch was that they had never worked with a Canadian author. They were hesitant to proceed with a printing contract until an understanding could be reached about how they would report the royalties to the Internal Revenue Service (IRS) and determine what the reporting responsibilities of the author would be.
My first instinct is to suggest that the accountant managing the affairs of the publisher is in the best position to make recommendations about their responsibilities with respect to US tax legislation. However, I thought it might help my friend if I could find out a bit more about the IRS’ regulations regarding her responsibilities.
To simplify the process, I will lay it out in three steps:
Step 1: Identification
Under normal circumstances, an American author would already have or be eligible to apply for a Social Security number. My Canadian friend is considered ineligible for a Social Security number as a non-resident alien. She will need to identify herself to the IRS using an International Tax Identification Number (ITIN) instead. For this, she will need to complete a W7 form.
My understanding is that the application process can take up to 8-10 weeks and that Canadians should take special note of Exception 1. d) in the instructions.
The instructions are available at: http://www.irs.gov/pub/irs-pdf/iw7.pdf
The form is available at: http://www.irs.gov/pub/irs-pdf/fw7.pdf
Step 2: Withholding Tax
Ordinarily, when a foreigner receives income from a US source, that income is subject to a 30% withholding tax. Because Canada has a tax treaty with the US, that rate is reduced to 0% for Canadians. It is the responsibility of the author to provide the publisher with documentation showing that he or she is eligible for a reduction in that withholding tax. The necessary form is called a W8 BEN. The form will ask which article of the treaty allows for the exemption and here you will need to fill in Article XII / 12 Royalties.
The instructions are available at: http://www.irs.gov/pub/irs-pdf/iw8ben.pdf
The form is available at: http://www.irs.gov/pub/irs-pdf/fw8ben.pdf
Step 3: Income Reporting
The publisher should then pay the author accordingly and issue a form confirming earnings for the year with one copy forwarded to the IRS and one copy forwarded to the author. The form is called a 1042-S.
ACanadian author will not be liable for income tax in the United States and is not required to file a return. However, if the 30% withholding tax was applied by the publisher, the author can file a return with the IRS in order to have that tax reimbursed.
The author would then file her taxes with the Canadian Revenue Agency as usual and may be required to declare the American source income for that tax year.
For more information, you can reach the IRS information line at: 1 267 941-1000.
Overview documents are available at:
Disclaimer: This article is not meant as professional tax, legal or financial advice. The information contained herein was gathered from a general information call to the IRS and from online sources. The author assumes no liability for its use or its accuracy. Readers are encouraged to consult with a professional advisor before deciding on a course of action.
About the author: Christina Attard, author of The Do-tique, is an experienced fundraising professional, a writer, researcher, editor, networker and blogger. She loves solving complex problems, helping make acts of transformative philanthropy happen, writing and meeting new people.
She can be reached at email@example.com