How to Get an ITIN (Easy Rules for Foreign Authors)
Question: I publish with CreateSpace, and I am getting 30% taken out of my royalty checks because I'm a foreign author. I'm in Canada, which has a tax treaty with the US. How am I being taxed? What percentage?
Canada has a very good tax treaty with the US. Your royalties will be taxed at either 5% or 10% max. In reality, it's less than that, because you get an exemption on the first few thousand dollars of income.
However, without an ITIN, any money that you earn on US soil will be automatically withheld at 30%. You must file an application for the ITIN (Form W-7) in order to stop the automatic withholding. Your other option is to just let CreateSpace withhold, and then file a tax return (Form 1040NR, Nonresident US Tax Return) and file the application for the ITIN at the same time.
You only need to file for an ITIN once. After that, you are pretty much done. You will not even have a filing requirement if your royalties do not exceed the exemption amount (which is $3,700 in 2011 and goes up every year). That is assuming that your country has a tax treaty with the US.
Canada, Mexico, Australia, and most of Europe have nice tax treaties with the US.
Here's a very common scenario:
Billy is a Candian Citizen and lives in Canada. He publishes through CreateSpace and earns $3,000 in royalties. CreateSpace withholds 30% in taxes automatically, which is $900. He wants that money back, so he files a US tax return (Form 1040NR) and also attaches an application for an ITIN (Form W-7). The return and the application gets processed.
About 2 months later, he gets his refund of $900 from the IRS. He also gets an ITIN. He also gives the ITIN to CreateSpace and they stop withholding any taxes from his royalties. If Billy starts to make big money (over $3,700) at a later date, then he will be required to file a tax return. When he files his return, he will owe 5%-10%, based on the tax treaty the US has with Canada.
Canada has a very good tax treaty with the US. Your royalties will be taxed at either 5% or 10% max. In reality, it's less than that, because you get an exemption on the first few thousand dollars of income.
However, without an ITIN, any money that you earn on US soil will be automatically withheld at 30%. You must file an application for the ITIN (Form W-7) in order to stop the automatic withholding. Your other option is to just let CreateSpace withhold, and then file a tax return (Form 1040NR, Nonresident US Tax Return) and file the application for the ITIN at the same time.
You only need to file for an ITIN once. After that, you are pretty much done. You will not even have a filing requirement if your royalties do not exceed the exemption amount (which is $3,700 in 2011 and goes up every year). That is assuming that your country has a tax treaty with the US.
Canada, Mexico, Australia, and most of Europe have nice tax treaties with the US.
Here's a very common scenario:
Billy is a Candian Citizen and lives in Canada. He publishes through CreateSpace and earns $3,000 in royalties. CreateSpace withholds 30% in taxes automatically, which is $900. He wants that money back, so he files a US tax return (Form 1040NR) and also attaches an application for an ITIN (Form W-7). The return and the application gets processed.
About 2 months later, he gets his refund of $900 from the IRS. He also gets an ITIN. He also gives the ITIN to CreateSpace and they stop withholding any taxes from his royalties. If Billy starts to make big money (over $3,700) at a later date, then he will be required to file a tax return. When he files his return, he will owe 5%-10%, based on the tax treaty the US has with Canada.
How to Fill Out Form W-7 (ITIN application)
Getting an ITIN from the IRS can be a frustrating experience, and since the withholding and reporting rules are changing in 2012, you must be prepared to supply an ITIN to CreateSpace or to LightningSource if you are a foreign author or publisher who wants to continue to sell books in the United States. Authors who are residents or citizens already have a tax identification number (this is your Social Security Number).
I get at least a dozen e-mails every month on this issue, so I am going to try and make this as simple as possible. I've searched the web for great articles and resources related to ITINs, and I have also created a SAMPLE Form W-7 for you to use as a guide.
First, read these Instructions for completing a W-7: the best instructions I've found online for completing a Form W-7 and Form W-8Ben.
Listing of US Tax treaties by country on the IRS website. If you are an author, you will need to find the "article number" that relates to "royalties." You can just download the tax treaty in PDF format and look up the article number for the country that you are resident or citizen of. I will show you where to put the "article number" on the sample form that I have prepared for you to use as a template.
STEPS for Getting an ITIN
1. You must download a blank Form W-7 from the IRS website. The form is available in English and Spanish. Print a few copies, so you can practice.
2. Fill it out-- do not miss any of the lines or it will be returned.
3. You must sign the W-7 form with an original signature (wet signature, NO photocopies), and send a valid identification. Here's a link to a blank Form W-7 for you to download and use. The sample one is below, and you can't use that, because it is already filled in (by me) so you can use it as a guide.
4. Make sure you have valid identification. Unless you are a minor child, you must supply an ID with a clear photograph. A passport is best. But you can also use something like a Driver's license and a birth certificate (together), as long as the driver's license has a photo. You basically need to give them your passport, or a notarized (very clear, preferably in color) copy of your passport.
5. If you send in an Form W-7 application, using just a photocopied document is not sufficient. Your identifying documents must be certified/notarized if you send a photocopy.
You must send EITHER:
Another tip: send a short letter with your name, phone number, e-mail, and address, stating that you are a foreign author and you plan to start selling books to US buyers. The Form W-7 will be processed by a human being, and this helps give the IRS employee a level of comfort.
(I'm a tax accountant in the US, by the way)
Here is a sample Form W-7, already filled out, for you to use as a template.
I get at least a dozen e-mails every month on this issue, so I am going to try and make this as simple as possible. I've searched the web for great articles and resources related to ITINs, and I have also created a SAMPLE Form W-7 for you to use as a guide.
First, read these Instructions for completing a W-7: the best instructions I've found online for completing a Form W-7 and Form W-8Ben.
Listing of US Tax treaties by country on the IRS website. If you are an author, you will need to find the "article number" that relates to "royalties." You can just download the tax treaty in PDF format and look up the article number for the country that you are resident or citizen of. I will show you where to put the "article number" on the sample form that I have prepared for you to use as a template.
STEPS for Getting an ITIN
1. You must download a blank Form W-7 from the IRS website. The form is available in English and Spanish. Print a few copies, so you can practice.
2. Fill it out-- do not miss any of the lines or it will be returned.
3. You must sign the W-7 form with an original signature (wet signature, NO photocopies), and send a valid identification. Here's a link to a blank Form W-7 for you to download and use. The sample one is below, and you can't use that, because it is already filled in (by me) so you can use it as a guide.
4. Make sure you have valid identification. Unless you are a minor child, you must supply an ID with a clear photograph. A passport is best. But you can also use something like a Driver's license and a birth certificate (together), as long as the driver's license has a photo. You basically need to give them your passport, or a notarized (very clear, preferably in color) copy of your passport.
5. If you send in an Form W-7 application, using just a photocopied document is not sufficient. Your identifying documents must be certified/notarized if you send a photocopy.
You must send EITHER:
- An original ID (which will be returned). (I got my in-law's ITINs using a voter registration card and a birth certificate for both of them, but I sent in original documents (which were returned to me).
OR - If you don't send original documents (such as an original passport or driver's license), then you must send a notarized copy. (*Note: Notarized passport copies must have an 'Apostille' attached). Copies will NOT be returned, regardless of the situation. So you might want to make more than one. Originals, on the other hand, will be returned.
- OR
- If you're completely lost, you can also use an ITIN "acceptance agent"-- you can Google them online. They are available all over the world. You will pay a fee, but your application will be accepted by the agent, and therefore is unlikely to get rejected. Make sure that you aren't just paying for a bunch of downloadable forms-- forms are available online for free. You can see a list of IRS-verified acceptance agents inside and outside the United States HERE.
Another tip: send a short letter with your name, phone number, e-mail, and address, stating that you are a foreign author and you plan to start selling books to US buyers. The Form W-7 will be processed by a human being, and this helps give the IRS employee a level of comfort.
(I'm a tax accountant in the US, by the way)
Here is a sample Form W-7, already filled out, for you to use as a template.
| sample_form_w-7_filled_out.pdf |
Lastly, if your application is rejected, the IRS will send you a letter with the information that it needs. The letter may have a phone number. If it does, call it and see if you can talk with the person that is processing your application. If not, then make sure you send a photocopy of the letter with any documents that you send back to the IRS to complete the application.
UPDATE: 8/2012 According to one Canadian author, the IRS has changed their requirements as of June 2012 and an original letter from the company paying you needs to accompany your Form W-7 or they will send it back. It has to be in original letter head, the letter body requirements are specific and it also must have a wet signature. This would apply to authors receiving royalties from CreateSpace, for example.
KEEP COPIES OF EVERYTHING. An ITIN application that is rejected may take a few months to clear up. Just don't give up. You only have to apply once, because once you have a valid ITIN, you can use it forever.
UPDATE: 8/2012 According to one Canadian author, the IRS has changed their requirements as of June 2012 and an original letter from the company paying you needs to accompany your Form W-7 or they will send it back. It has to be in original letter head, the letter body requirements are specific and it also must have a wet signature. This would apply to authors receiving royalties from CreateSpace, for example.
KEEP COPIES OF EVERYTHING. An ITIN application that is rejected may take a few months to clear up. Just don't give up. You only have to apply once, because once you have a valid ITIN, you can use it forever.
*PLEASE NOTE: I get a lot of e-mails regarding this article, and many people ask for tax advice. Even though I am a US-based tax accountant, because of liability concerns, I do NOT do ITIN consulting or tax preparation for overseas individuals and I cannot respond to any e-mails regarding this issue. I suggest that you find a local tax professional that can help you with overseas tax issues if this information seems confusing for you.
ITIN Acceptance Agent/ REFERRALS
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ITIN Processing and Tax Preparation Inside the USA
If you are in need of ITIN Processing or tax preparation of expatriate or nonresident tax returns for foreign or overseas persons, you can contact:
K&K Tax Group Call (877) 395-0304 or 001 (305) 400-8812 http://www.kktaxgroup.com/ (the author of this article is NOT affiliated with the K&K tax Group) |
| certified_acceptance_agent_instructions.pdf |
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