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Tuesday, March 22, 2011

How Non-US Authors on Amazon and Smashwords Can Reclaim US Tax


Today I'm pleased to bring you a guest article from UK author Ali Cooper.

It's about an issue that concerns many non-US authors publishing their own work on Amazon and Smashwords (a popular e-book self-publishing platform).

The issue is that these US companies automatically deduct tax at 30% from any sales income earned before forwarding it. This applies even though there are tax treaties with the US that are supposed to prevent this happening, as it means an author could potentially be taxed twice on the same income.

As a non-US citizen, getting your tax back from the IRS (US tax authority) is emphatically NOT a straightforward process (although, of course, it ought to be). In her article, which was originally published on her Facebook page and is reproduced here by permission, Ali sets out the exact steps she has taken to recover tax deducted by Amazon and Smashwords on the sales of her literary mystery novel, The Girl on the Swing.

Ali's article was written with specific reference to UK authors, but most of her advice would apply equally to non-US authors in other countries as well. Ali has also asked me to point out that she is a writer, not a tax expert. The advice in her article is correct as far as she knows, but she cannot be held responsible for any errors or inaccuracies. You should consult your own professional advisers if you are in any way unsure how to proceed in these matters.

Take it away, Ali...

* * *
If you are a UK citizen, paying (or required to if you earn enough) UK tax, you should not be paying US tax. There is a tax treaty between the countries agreeing this. However, the IRS will automatically deduct 30% of your earnings until you have gone through all their form-filling requirements.

Having completed most of this process myself, this is my guide to what you will need to do. Smashwords are very clued up about it and put links to all the downloadable forms you will need on their site. I'll summarise this, and add a few bits that apply specifically to UK authors.

Three-Stage Process

There are three things you need to complete in order to avoid US tax. And you need to do them in this order.

1. Obtain a letter from a withholding agent (i.e. someone who's paying you, Amazon or Smashwords) saying that they are paying you.

2. Submit this letter along with ID and a form to the IRS.

3. When you receive your ITIN from the IRS, fill in another form and submit it to Amazon, etc.

ALSO

4. If any of your earnings were withheld in previous tax years (that's Jan-Dec in the US) you can claim back the tax for three years from the IRS.

Stage One

The IRS require a signed letter, written on paper, from someone in the US who is paying you, before they will process your application for an ITIN (individual tax identification number). The statement you get with a cheque from Amazon, which clearly states they are paying you and how much, is not enough.

Smashwords are very clued up and helpful about this. Amazon, unfortunately, are not. As soon as you earn $10 from Smashwords, they will provide the necessary letter - click a button to request. I would suggest that if you are earning and being taxed by the IRS, the sooner you get the tax process started, the better. I would advise any new author, even if you aren't selling much (or anything) through Smashwords, it might be worth buying enough copies of your own book through them (you'll get most of it back as royalty anyway) in order to request that letter now.

Stage Two

When you have a letter stating you are being paid by a US company, you can apply for an ITIN. You will need to fill in form W-7. This, and the copious instructions for filling it in, can be downloaded from the IRS website. Smashwords provides the links, but do a Google check just to make sure you have the most up-to-date form. You can fill it in on your computer, then print it off and sign it. Reason for submitting form should be a, and h, and alongside h you should write 'exception 1d royalties'. The treaty article number is 12 [for the UK, I assume - Nick].

You now need ID, preferably a passport. It's possible that a driving license would be accepted, but check first. The US Embassy in London are very helpful and will answer questions by email. They say they also offer phone support, but I've not known them answer!

When you have your letter from Smashwords, completed W-7 and passport(s), you have three options.

1. Get your passport copied and signed by a notary (cost approx £50 - £100) and send with form and letter to the IRS in the US.

2. Go in person to the US embassy in London (check their website for opening times).

3. Send your documents, including passport, to the US embassy in London (cost approx £5 for special delivery).

I went for option 3 and am glad I did for several reasons. Many people get something wrong first time and have to redo it - not good if you've sent everything to the US. The embassy will check everything for you and return your passport by special delivery within a couple of days. They then forward your application to the US and will follow it up for you if it takes too long, etc.

Stage Three

Eventually you will receive a letter from the IRS with your ITIN. You now need to download form W-8BEN and instructions from the IRS. As usual, Smashwords have the links for this. They also suggest that you enter the user name and/or email you use with them in the 'reference number' section of the form. You will need to fill in the form, including your ITIN, and print a copy for each company paying you, e.g. Smashwords, Amazon. Obviously, the reference details for each one may be different. You then need to sign and post a physical copy to each company.

Once the forms have been received and processed, any tax withheld by each company for this tax year should be automatically reimbursed by them. Any tax withheld for previous tax years will have already been sent to IRS and you will need to claim it back from them yourself.

* * *
Many thanks to Ali for sharing this valuable information with the world-wide writing community. Do check out her website at www.alicooper.net and her excellent novel The Girl on the Swing (available on Amazon as a Kindle book and in printed form and in various e-book formats on Smashwords).

If you have any comments or questions on Ali's article, please do leave them below.

Update June 2012: It now appears that applying for an EIN may provide a faster, easier method than applying for an ITIN. Please see my new post A Fast Track Route for Non-US Authors to Avoid Paying US Tax on Royalties? for details.

Photo Credit: Income Tax by Alan Cleaver on Flickr.


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42 Comments:

Blogger DW96 said...

Many thanks for thi article Ali (and Nick)

I was about to start this process and initially I was going to send my Birth certificate to the IRS in Austen Texas. The guidelines on Amazon are poor and they don't mention that you can send your passport to the US Embassy.

I've bookmarked this article for future reference.

9:48 AM  
Blogger Vivacia said...

Thanks Ali for a really informative article. Do you need to only go through this process the once, and from that point on no US tax will be deducted from sales? Or do you need to do it repeatedly?!

10:51 AM  
Blogger Stephen Booth said...

Thanks for the article, but there's just one stage missing from your advice. That is: how do I actually get a response from Smashwords to my completed W-8BEN?

I already have an ITIN, and I sent them my form in December. The options on my payment page are still 'withhold the tax' or 'wait until I've sent my W-8BEN' (yet they talk about allowing 'up to three weeks' for processing).

There might be a good reason for the delay, but since I can't get any answer to my emails via their support page either, I have no idea what it is.

I really want to publish on Smashwords soon, but this is not encouraging... Is it just me? :)

7:10 PM  
Blogger Nick said...

Thanks to everyone who has commented so far.

I've asked Ali, as the expert in this, if she could look in and answer any questions, although I know she is very busy right now preparing her new novel, Cave, for publication.

In answer to Vivacia, my understanding is that (thankfully) you should only have to go through this tortuous process once. After that, the IRS should accept that you are definitely not a US citizen and should not be paying tax to them.

Stephen, I can't answer your question myself, but maybe Ali will have some ideas. Or is there anyone else out there who can suggest a solution to Stephen's problem?

11:11 AM  
Anonymous Ali Cooper said...

Hi everyone,

A few answers.

Yes, you can go via the US embassy, but you still need that signed letter stating you are earning to accompany your form. I didn't realise this first time around. I sent my passports etc which were promptly returned along with everything else. As it took more than 30 days to get the letter from smashwords (it was Christmas/New Year) I had to send my passports again!

IRS say that the ITIN is yours for ever. However, you apparently have to send a new W-8BEN to payers every 3 years.

Yes, your W-8BEN may take a while to be added. I can understand there are probably a of people submitting them right now so they may take a while to process. Having said that, I know a Canadian author who has been waiting for amazon to process his for approx a year. He keeps emailing and they keep replying that they've received it and it's all in hand. If it hasn't been applied after 6 weeks I'd definitely follow it up - and make sure you put your sign on email address on the form so they can match it to your account.

Ali.

2:12 PM  
Anonymous S.D. Livingston said...

Great info! As a Canadian author who's just applied for an ITIN, I know that Passport Canada will provide a notarized copy of Canadian passports at no charge. There's a wait time of about a week, but the process was very simple. Just call your local passport office and they should be able to answer any questions.

5:19 PM  
Anonymous Tony_A20 said...

I ran into this problem a couple of years ago and had a long series of posts on the Amazon forum. Readers of this blog item might like to read:

http://forums.kindledirectpublishing.com/kdpforums/thread.jspa?messageID=19585&#19585

To get more of the flavor of the nitty-gritty which is involved.

10:16 PM  
Blogger Nick said...

Many thanks to Ali, S.D. and Tony for their input. I really do hope this convoluted and bureaucratic process is simplified soon.

11:22 AM  
Anonymous Jane said...

Thanks for this blog - I found it in desperation today after having my request for an ITIN rejected. I spent £60 on getting my passport notorised by a solicitor, got a letter from Smashwords and filled in the form. But no, for some reason, they rejected it and sent me a form letter. I called the IRS and they can't say why it was rejected. Also, they will not re-open my case or return my documentation, so I have to go to the effort - and expense! - of doing it all over again. I'll go to the US Embassy this time, but that will take a whole day and I'll have to pay for train. I'm very upset by the whole thing, as I have waited for two months for my (limited amount) of money locked up in Amazon / Smashwords etc. I've book-marked this blog and return later when I've calmed down a bit.

3:50 PM  
Blogger Nick said...

Thanks for your comment, Jane. I feel your pain...

Ali is the real expert on this, of course. She has succeeded in getting her application accepted and Amazon royalties paid to her without deduction - so it definitely CAN be done.

In my view it is ridiculous that non-US citizens are being made to jump through all these hoops by the IRS just to avoid having US tax deducted, but there we are. Maybe the process will be simplified and streamlined in due course, but I'm not holding my breath.

Keep smiling!

Nick

6:37 PM  
Anonymous Jane said...

Thanks, Nick!

I've calmed down a bit now. Today is a new day and all that.

You can't blame the IRS for making sure people don't defraud the US Government out of tax. But I wish they had sent my documentation back to make it easier for me to re-apply.

Ah well, a day at the US Embassy in London awaits...

11:28 AM  
Anonymous Dianna Hardy said...

Hi Jane,

I'm in the same boat as you! I applied via their office in Texas, with a notarised copy of my passport. They sent it back rejecting it and DID NOT send back my passport copy, which cost me £50. Their lack of regard for such important documents is quite shocking really.

Anyway, I was introduced to Ali when she left a comment on my blog, and she mentioned this site. GREAT ADVICE ALI :)

Thanks for posting it!

Kind Regards,

Dianna

10:16 AM  
Blogger Cat said...

Great article and acurate (as far as I can tell). For Germans: you don't have to go to a notary. Go to your local council (Bürgerbüro) and they will seal and sign it for free. And because they are officials, the IRS accepts it. That's what I did, and I've already got my iTIN

8:45 PM  
Blogger Nick said...

Many thanks for the useful info, Cat. Congrats on getting your ITIN!

10:40 PM  
Blogger Chris Longmuir said...

I am in the middle of the process of applying for an ITIN. I noticed Jane said she got a solicitor to notarize her passport and that is why it probably went wrong. Apparently the notaries have to be approved by the US and the last time I checked there were only 2 in the UK both based in London. The other thing was the comment about emailing the US Embassy. I was unable to find an email address that UK citizens could use, the only email addresses were for US citizens applying to renew visas. This, however was a blessing in disguise because I emailed the Edinburgh Consulate and discovered that the US Consulates can notarize your passport and it costs nothing, except for a trip to the Consulate. My notarized passport and form went off at the end of July and didn't bounce back so I am presuming it's okay.

11:10 AM  
Blogger Nick said...

Thanks for the info, Chris.

1:09 PM  
Blogger Marita A. Hansen said...

I have a document from Createspace stating:

The purpose of this letter is to confirm that you, as an individual, may be receiving royalties from On_Demand Publishing LLC (a.k.a Createspace) during the current tax year...etc...Please attach this letter, on letterhead, to your Internal Revenue Serice form W-7...

What I need to know is what "letterhead" am I supposed to attach this letter to? I'm an individual, not a publisher. I don't want to get my application rejected because I missed something.

Any help would be much appreciated.

3:53 PM  
Blogger Nick said...

Hi Marita

Thanks for your comment. It arrived while I was away on holiday, so please accept my apologies for the delay in approving it.

I'm no expert on this, but I would simply attach it to your personal letterhead - "Marita A. Hansen - Freelance Writer", or whatever. You certainly don't need to be an incorporated publishing company to avoid paying US tax.

Good luck!

9:02 AM  
Anonymous Rowena said...

This has been the most useful article on this subject I've found all over the internet!
I've been looking for something that goes into this much detail for ages, and it's just what I need. I had no idea I had to send important documents to the US embassy, so a trip to London is definitely in order. Thank you so much!

7:00 PM  
Blogger Nick said...

Thanks, Rowena. Good luck!

10:43 PM  
Anonymous Julie R said...

I have just sent my letter from Smashwords, my W-7 form and my passport to the US Embassy in London. I think I've done everything right. Fingers crossed!!

9:39 PM  
Blogger Nick said...

Good luck, Julie. Let us know how things work out for you.

7:58 AM  
Anonymous Anonymous said...

Great article Ali and thanks for sharing Nick.
I have recently started publishing on Amazon as was concerned with the tax being withheld and came to your article. After doing further investigation (I live in Australia) I found out if I include my foreign income in my tax return and show I have paid tax on it I can claim a tax offset for the amount I have paid in foreign tax so as not to be taxed twice. I am not sure how other countries work but it might pay to check with your tax office before filling out any forms.

9:55 PM  
Blogger Nick said...

Thanks for this. Some UK authors do this too, I know, but it does mean that the tax is deducted initially, and you only get it back months or maybe even years later.

In addition, I have some moral reservations about allowing the US authorities to help themselves to tax they are not entitled to, with the shortfall then having to be made up by citizens of one's own country. Does the US return the tax it has wrongly deducted from non-US residents to the country concerned? I'm pretty certain it doesn't.

For both these reasons, then, I think it's better to go through the process Ali recommends, even though it's more hassle initially.

8:40 AM  
Anonymous Olga ("Allowing Life") said...

What a great, informative article. Thank you, Ali and Nick and everyone contributing in the comments.

I have this question: when I get the ITIN by the letter from one paying me company, I then use it for all the other companies, right?

I just thought I was working with 2checkout, and if they give me such a letter and I get the ITIN, I then can use it for Amazon and Smashwords, right?

Thank you very-very much,
Olga.

12:39 PM  
Blogger Nick said...

Thanks, Olga. I think you may have misunderstand the article slightly. The ITIN actually comes from the IRS, not the company that owes you money. Once you have received your ITIN, the process is as follows (quoting from Ali's original):

"Eventually you will receive a letter from the IRS with your ITIN. You now need to download form W-8BEN and instructions from the IRS. As usual, Smashwords have the links for this. They also suggest that you enter the user name and/or email you use with them in the 'reference number' section of the form. You will need to fill in the form, including your ITIN, and print a copy for each company paying you, e.g. Smashwords, Amazon. Obviously, the reference details for each one may be different. You then need to sign and post a physical copy to each company.

"Once the forms have been received and processed, any tax withheld by each company for this tax year should be automatically reimbursed by them. Any tax withheld for previous tax years will have already been sent to IRS and you will need to claim it back from them yourself."

So yes, you can use your ITIN for all the US companies paying you: 2Checkout, Amazon, Smashwords, and so on. You will just need to print out a separate copy of form W-8BEN for each company and send it to them. Hopefully, then, you will start getting your tax reimbursed.

Good luck!

1:17 PM  
Blogger ashley01 said...

How do you go about getting this letter from Amazon? Their information is so vague. Also, I noticed something about 'after your first $10 in sales' you can get this letter. Does this apply to Amazon as well?

5:31 AM  
Blogger Nick said...

You don't necessarily need a letter from Amazon. As Ali says, a letter from any US company paying you will do, so she recommends getting one from Smashwords, who are much more helpful.

Once you have the letter, as Ali's article explains, you can apply to the IRS for an ITIN. Once you have your ITIN, you can then print out and complete copies of form W-8BEN for Amazon, Smashwords, and any other US company that may owe you money.

Hope that helps!

Nick

8:33 AM  
Anonymous Jane Rutherford said...

As a non-US writer, the tax thing was always on my mind. Now I just need to do some research for my own country (not UK, unfortunately) but with this, it'll be much easier. Thanks!

6:31 PM  
Anonymous Diane J Cornwell said...

I too applied and was rejected. I refuse to apply again because it cost over $120 Australian dollars to get the passport copied signed the first time. Like anonymous comment above, I claim the 30% tax back each year and the Australian Tax office deducts it from whatever I owe them for the year.

Sure is easier than forwarding forms every three years to USA businesses, and jumping through hoops just to get the ITIN number.

9:45 AM  
Blogger Nick said...

Thanks for your comments, both. Diane, I agree that reclaiming the money via your own tax authorities is an alternate option with some attractions, though it does seem wrong to me that the US government is profiting from people doing this at the expense of other governments around the world. But clearly I would never criticise a writer for taking this course. Really, this issue needs to be addressed at government level, but I'm not holding my breath waiting for that.

10:04 AM  
Anonymous sumayya said...

I've just discovered that amazon.com DO have a letter to accompany the ITIN application - https://kdp.amazon.com/self-publishing/help?ie=UTF8&topicId=200641090
Submit an ITIN letter along with your Form W-7 - the words ITIN letter lead to a downloadable letter!

11:58 AM  
Blogger eskimo said...

This is very helpful although I think it's a lot of trouble to go through.I'm almost ready to publish my first e-book on Amazon and Smashwords and I think it may be a lot easier just to let UK tax authorities deduct the US tax from what (I hope) I will owe them.

Do you get a statement from Amazon and Smashwords to show how much tax US have deducted?

4:36 PM  
Blogger Nick said...

Thanks for your comment, Eskimo.

As I've said above, it is perfectly feasible to do it the way you propose. It's obviously simpler, but it has drawbacks as well, especially if you have any unused personal allowance on your UK (or other home nation) tax. Plus I think it is morally wrong that the US tax authorities are effectively taxing non-US citizens, and other nations' tax coffers are losing out as a result (since I'm quite sure the IRS won't pay back the money it has received from such individuals). But still, I can quite understand why non-US authors would prefer to avoid having to jump through all these ridiculous bureaucratic hoops just to prove that they are not American citizens.

And in answer to your question, yes, your statement from Amazon or SW will show how much US tax has been deducted.

6:23 PM  
Blogger eskimo said...

I've just found an entry on the Kindle Forum. You can telephone the IRS and they give you an EIN number which can be used immediately, no need to go to the expense of getting a passport copy signed or travelling to US Embassy. Forum is at
http://forums.kindledirectpublishing.com/kdpforums/thread.jspa?threadID=30934&start=0&tstart=60
Phone number is 001-267-941-1099

Example form filled in(on download) link has wrong box ticked Should be EIN number NOT SSN/ITIN
Don't know if it makes any difference having an EIN number instead of ITIN.

6:44 PM  
Blogger Nick said...

Interesting. Would love to know if anyone has tried this and whether it worked or not.

10:11 PM  
Anonymous Val Hamer said...

I did some writing for an American company last year and they posted out the letter and the IRS form. I returned them and voila, no tax. Not sure why Smashwords etc need such a complicated process. I didn't have to send ID or anything.

5:35 AM  
Blogger Nick said...

Thanks, Val. It's all very mysterious, isn't it, but at least your experience sounds a bit more encouraging.

I still think it's ridiculous that non-US writers are being forced to jump through all these hoops just to ensure that Uncle Sam doesn't help himself to tax to which he is not entitled.

Really, I think this issue needs taking up at the highest level, i.e. among politicians. It can't be right, for example, that growing numbers of non-US writers are having tax deducted by the IRS, then reclaiming it via their own countries' tax authorities. I don't blame anyone for doing this, but ultimately it means that tax revenues that should be going to these countries are going to the US instead.

9:13 AM  
Anonymous Anonymous said...

Mystified about this process. Have been earning royalties from Google and other affiliate programs, even other ebook sales programs, and never come across this problem.

9:42 AM  
Blogger Nick said...

Good point, and one I've thought about as well. In the case of Google AdSense, the European operation is based in Ireland, so there should be no risk of them deducting US tax. But Amazon, Smashwords and Lulu are all now doing this, and it's not clear to me why affiliate fees from US-based companies are not being treated in the same way. Obviously, I hope it doesn't happen, though!

11:06 AM  
Blogger jambalian said...

I followed Ali's instructions, sent the passport to the US Embassy in London and got my ITIN within 2 months. I then sent the W-8 form to Smashwords and Amazon and both confirmed receipt within 3 weeks. I asked Amazon when they would refund the tax they'd withheld this year and they said they wouldn't. Apparently they will send me a form in March 2013 and I have to claim it back directly from the IRS!!

6:40 AM  
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10:40 AM  

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