One of the best things about publishing your books with Amazon Kindle is that almost anyone can do it from anywhere in the world. This is great for international authors outside the US who have always wanted to expand their audience base.
Unfortunately, Amazon makes non-US authors fill in a ‘tax questionnaire’ before you’re able to publish your first book. If you’ve filled in the quick and easy online form, you’ll already know that authors outside of the US are subjected to a 30% tax withholding.
What this means is for every dollar you earn from Amazon Kindle sales, Amazon will withhold 30% to be reported to the IRS. The remaining 70% of your royalty earnings are paid to you via check.
If it wasn’t bad enough that non-US authors get the joy of paying exorbitant foreign exchange rates and currency exchange bank fees on a check drawn in US dollars, we also have the issue of losing 30% of our income on withholding. (another post on reducing your foreign exchange rates and fees coming soon…)
What you may not realize is that it’s possible to get out of paying that 30% withholding at all – but only if you set up your Amazon account the right way.
Avoid Paying the 30% Withholding for Non-US Authors with an EIN
When you fill out your tax questionnaire with Amazon, you may be asked to fill in your ITIN (Individual Taxation Identification Number), if you have one. If you don’t, you can opt to fill in your tax file number for wherever you do report your taxes. Even if you DO have an ITIN, you are still required to pay the 30% withholding.
However, what they DON’T tell you is that non-US authors with an EIN (Employer Identification Number) aren’t subjected to the same withholding rules. Awesome!
Most authors are their own bosses and the IRS concedes that sole traders from most countries are typically self-employed small business owners. As a business owner, you’re potentially an employer, so you definitely need an EIN.
If you’re in Australia and you’ve registered an ABN (Australian Business Number), you’re in business, which makes you potentially an employer, so you qualify for your EIN right away.
You can apply for your EIN via the IRS website here: https://sa1.www4.irs.gov/modiein/individual/index.jsp
Remember, you must complete your session in one sitting. If your session is inactive for more than 15 minutes, you’ll be logged out. As the site doesn’t save your personal information, you’ll need to start over.
Once you’ve completed the form, you can download the PDF file that shows your EIN and print the confirmation notice for your own records.
UPDATE July 2014: It appears the online application form may have changed, as it’s no longer an option to progress through the application without entering a U.S. SSN or ITIN. Fortunately, there’s still a way around this. I assisted an Australian friend with obtaining her EIN this morning and the whole process took us 8 minutes (at 6.30am this morning to ensure we caught the US time zone). We called the IRS directly on the following number:
+1 267 7941 1099
The person on the phone walked us through the application in detail, being sure to spell EVERY name and address clearly. When asked why you’re applying for an EIN, state “Foreign business complying with withholding regulations”. After 8 minutes of completing the form over the phone, the person read out the approved EIN over the phone and said the complying forms will be mailed out to Australia in 3-4 weeks.
But it meant we got the EIN almost instantly!
Notifying Amazon of Changes to Your Tax Information
If you’ve already submitted your Amazon tax questionnaire and they’re automatically withholding 30% of your royalty income, you need to update your information the moment you get your EIN.
Log into your KDP account (http://kdp.amazon.com) and click on the link for your Account (top navigation bar of the page). You’ll see a section right below your personal information that says “Tax Information”. There should be a link inside that box that lets you update your tax information.
You will need to fill out the tax questionnaire again, only this time you can enter your EIN in the section that asks for your SSN/TIN. The 30% withholding will stop and the agreed withholding rate for whatever country you’re in will take effect immediately. In Australia, our tax treaty is 5% withholding (boo…) but it’s MUCH better than losing 30% of your income.
How Do You Get Your 30% Withholding Back Again?
Unfortunately, lots of non-US authors may have already seen a chunk of their royalty incomes go to the IRS. In order to get that 30% portion of your royalty income back again, you will need to submit a tax return to the IRS from wherever you are.
Remember, you may be eligible to deduct some of your costs as business expenses. Keep careful track of your deductions, as you be able to reduce the amount of tax you have owing in the US.
You’ll find lots of information about how to do this from an international location on the IRS website (www.irs.gov).
Being an international author is great fun and you certainly do get the benefit of expanding your readership enormously. Just be sure you don’t end up reducing your income or paying more than you should simply because you live elsewhere in the world!