US Withholding Tax & What to Do
The following information is for non-US residents (if you’re being published in the United States).
Taxes. You probably even dread the sight of the word. Unfortunately, as the old adage goes: There’s nothing more certain in life than death and taxes. So whether you’re traditionally published or self-published, taxes are something you’re going to have to deal with.
You should be aware that if you’re not a resident of the United States, you can have as much as 30 percent of your income from your books (that are published in the US) withheld by the US government. Depending on where you reside in the world, you may be able to avoid this withholding altogether, or reduce it considerably. It rests largely upon whether or not your country (or the country in which you’re resident and paying income taxes) has a taxation treaty with the United States.
In my case, for example, I pay no withholding because Canada has a reciprocal tax agreement with the United States. This agreement allows a writer like me, resident and paying income taxes in Canada, to apply for exemption from the US withholding tax. In order to do this, however, it is necessary to submit to the US-based publisher what is known as a W-8 BEN form. (I couldn’t get my advance from Switch Press until I submitted a completed copy of this form to them.) However, in order to fill out the W-8 BEN form so that it satisfies the requirements of the US IRS (Internal Revenue Service), you must first have a US ITIN (Income Tax Identification Number).
Acquiring an ITIN can be tricky, and you have to apply directly to the IRS for one. This requires a few things. First of all you must get hold of a W-7 form. (Yes, you must fill out a form so you can get a number so that eventually you can fill out another form. Don’t you just love bureaucracy?) You can find the W-7 at the US IRS site, along with the W-8 BEN form. You’ll also find instructions on how to fill out both of these, and you need to follow these carefully. I’ve heard of many people having their applications rejected, and it often comes down to having not done something quite right in the process. (This may have something to do with the fact that some people find the W-7 a bit confusing – especially when it gets into the matter of citing the pertinent treaties.)
On Form W-7 (for Canadian’s, at least) you need to cite the following: “Exception 1(d) Third Party Withholding on Passive Income.” This is what you put on the line after you check box “h” under the section “Reason you are submitting Form W-7”. You should also check box “a”. Below the boxes and the line regarding “Exception 1(d)…” you should fill out the line asking: “Additional information for a and f: Enter treaty country>”. In the case of Canadians resident in Canada, this will, of course, be “Canada”. Following this there is: “and treaty article number>”, which you should put down as “TIAS 11087.” (But I would advise checking this, as it may have changed since I did it in 2014). The rest of the form is pretty straightforward: your name and address, etc. The only thing that may stump you for a moment is the foreign tax I.D. number. It’s suggested Canadians put down their SIN number.
Once you have your Form W-7 filled out, you must acquire suitable identification. The IRS will not accept a mere photocopy of your driver’s license, government-issued I.D. card, or your passport. The best route to go is acquiring an official, certified copy of your passport to accompany the form. (Your passport must be up to date; It’s also suggested you include a copy of your driver’s license or I.D. card along with this when you send in the form.)
There are, supposedly, agents who are IRS-approved and registered to legally provide you with certified copies of your passport, but this seems to be a bit of a hit and miss thing, as I have heard of several people for whom the IRS-approved agent’s copy was deemed inadmissible by the IRS. (This will also cost you – some people have apparently paid as much as $500 for this service.) Therefore, I strongly recommend you go to a Government of Canada passport control office and get a certified copy from them. In the past this didn’t cost anything, but it now does; I believe the fee is somewhere in the order of thirty-five dollars, and the wait time is generally about two to three weeks (although I only had to wait a week – but this might have been due to the fact that I live in Ottawa). Note that you will be without your passport for that period of time, since it must be sent away to acquire the official, certified copy (so don’t plan a vacation outside of the country during this time because that would be a real bummer)
According to some, the certified copy won’t be accepted unless it has some sort of seal on it; however, mine was merely a photocopy signed by the senior passport control officer in Gatineau and it passed muster, so who knows. If you can’t or don’t want to get a copy of your passport, you can actually send it to the IRS via (I believe) registered mail. I don’t recall for certain whether you’re required to include a SASE – I’ve a feeling not, but don’t quote me on that (and besides which, it may have changed in the last two years). Personally, I wouldn’t send my passport through the mail if I could avoid it – particularly across borders (regardless of it being registered).
Another requirement for writers is that you submit to the IRS, along with the W-7 and the certified I.D., a letter from the publisher as to why you require an ITIN. I’m not sure how this would work for self-published writers, since you are essentially your own publisher. Possibly you could get some sort of a letter from Amazon (or whatever outfit you chose to self-publish through). My agent of the time had no difficulty acquiring (for me) the necessary letter from Capstone Publishers (the publishing house of which Switch Press, the publisher of Becoming Darkness, is an imprint). I don’t imagine it would be otherwise for anyone else being traditionally published.
I would suggest that when you mail in your Form W-7 and attendant documents that you also include a letter with your submission. Make it brief but personable, and be exceedingly polite. Outline your reasons for requesting the ITIN, and also be sure to thank the IRS staff for their time and assistance. A little politeness goes a long way; and despite the aura that may exist around the IRS, one should never forget that they are merely doing their jobs. Treat them the way you would wish to be treated.
For the record, the ITIN is apparently good for only five years, after which one assumes you must go through the whole process all over again.
If you have an agent, she may be able to help you with these tax issues by putting you in touch with a client whose situation is similar but who has already done the requisite leg work. My US-based agent of the time didn’t really know much about the whole tax regime regarding Canadians, but she did have other Canadian clients and I was able to ask one of them about a concern I had regarding submitting income tax forms. It wasn’t clear as to whether – regardless of the exemption – a Canadian writer whose income came from an America publisher would have to submit a US income tax form. The other Canadian client of my agent was able to report to me that according to the IRS (to whom she had talked directly), this was not the case.
Now, as I’m sure you’re well aware, governments and bureaucracy have a tendency to tweak the rules on a whim, so what applied yesterday may not apply today, and who knows what might apply tomorrow. The information above is based on what was required in 2014 and may have since changed, so it behooves you to check out the US government IRS site for the latest updates.