Royalty Contracts and Income Taxes
June 10, 2008
Many small and some medium sized book publishers overlook the income tax reporting reporting requirements of the Internal Revenue Service.
- First, publishers are required to report all royalty payments in excess of $10.00 on FORM 1099-MISC).
- Second, royalty advances are treated as royalty income and should be reported.
- Third, if your author does not provide a tax-id number you are required to withhold a percentage for income taxes and forward the amount to the IRS. If the author provides a tax ID number after the monies have been withheld he; no the publisher, must apply for a refund from the government.
- Fourth, book publishers are required to report royalty payments (including royalty advances) made to overseas authors and may be required to withhold a percentage of the payment for taxes; see FORM 1042). The withholding rate varies by country and can be zero depending on the tax treaty between the United States and the author’s country of residence.
At Kensai we recommend that all publisher royalty contracts include a section for the authors tax ID, phone number and email address and that no payments be made to the author(s) without this information.
