Google has made a new notification that would come as a piece of bad news for YouTube content creators from India and other parts of the world. Creators who are not based in the United States would be subject to US tax withholding or deduction from their monthly earnings. Notably, the new policy would not affect US-based creators. The new additional tax for non-US-based YouTube creators starts coming into effect as early as June 2021. Google can withhold between 0 to 30% of tax on earnings based on the type of YouTube account one has and his country of origin.
Moreover, Google would deduct taxes on YouTube earnings from viewers in the US not only on ad views, but it would also deduct from YouTube premiums, super stickers, super chat, and channel memberships, according to the support page (1).
According to Google’s post on the support forum (2), all monetizing creators on YouTube, regardless of their location globally, are needed to provide their tax info. The giant requested content creators to submit their tax info as soon as possible. And if they don’t provide tax info by May, 31st 2021, Google may be required to deduct up to 24% of the total earnings worldwide.
In an official communication, Google stated that over the next few weeks, it would be asking content creators to submit their tax info in AdSense (3) to determine the correct amount of taxes they would need to withhold if any apply. What is important to understand is that content creators won’t have to pay tax for the money they made outside of the US if they provide relevant tax documents.
Here is YouTube’s original announcement:
Where Will be the Tax Applicable?
How much tax will be deducted from any YouTube content creator’s earnings will depend on several factors. For creators outside the US, submitting the tax info would get one a withholding rate of 0 to 30% on earnings that they make from their US-based viewers. It means that if you are a content creator with a large segment of your audience and views based in the US, you need to prepare for some revenue holes from YouTube.
As per the support page, if one submits the US tax info, he would get withholding rates between 0 to 30% on earnings that he generates from viewers in the US and whether his country has a tax treaty relationship with the United States.
Content creators from the United States would not be subject to any tax withholding if they provided valid text information. However, suppose they have not provided any US tax information. In that case, Google may withhold according to the maximum tax rate, which would again be dependent on the creators AdSense account type and the country of origin (4).
What are the New Tax Rules for YouTubers Residing Outside the United States?
If you ignore and don’t submit your tax information, expect to pay 24% of your monthly earnings across all regions. However, if you submit your tax info and are eligible for a treaty benefit, you will have to pay 15% tax from the money you make monthly from viewers residing in the United States. On the other hand, if a content creator submits his tax info and is not eligible for a tax treaty, he will have to pay 30% tax from the money he makes monthly from viewers in the United States.
What Happens if No Tax Info is Provided?
If you create an account classified as a business account, the default withholding rate would be 30% of the US viewers’ earnings.
If your creator account is classified as an individual account, backup withholding will apply, and you would pay 24% of the total earnings worldwide.
Google also mentioned in its official post that these withholding rates would be adjusted in the next pay cycle once valid US tax info is provided in AdSense.
How Much Indian Content Creators Expect to Pay Extra in Taxes?
Google, with an example, elaborated that if a content creator in India is making 1000 USD a month from YouTube and out of the 1000 USD income if his viewers the US account for 100 USD earnings, then these are the possibilities:
- If the creator doesn’t submit tax info, the final deduction is 240 USD, 24% of the 1,000 USD monthly earnings. If one doesn’t submit a form, the withholding tax rate is up to 24% of the total earnings. It means that until Google has got your complete tax info, it would need to deduct up to 24% of the total earnings globally and not just your US earnings.
- Suppose the content creator submits his tax info and also claims the treaty benefit. In that case, the final tax deduction is 15 USD, 15% USD of the 100 USD monthly earnings from the US residing in the United States. India and the US have a text treaty relationship that reduces the tax rate to 15% of earnings from viewers residing in the United States.
- Suppose the creator submits his tax info but is not legible for a tax treaty. In that case, the final text deduction is 30 USD, 30% of the 100 USD earnings from viewers in the United States. The tax rate without a tax treaty is 30% of earnings from viewers residing in the United States.
Hence, if you are making money from YouTube, visiting the Google support page for all the relevant tax information and documentation is recommended. The deadline to submit the same is May 31st, 2021.
Google also warned that if tax forms are not provided by the deadline, your tax rate will default to 24% of your total revenues for individual account types, account type for a majority of content creators, even if one only has a small percentage of revenues from the US viewers (5).
Why Google Implemented the New Tax Requirement?
On the support page (6), YouTube stated that Google, its parent company, has the responsibility under Chapter 3 of the United States Internal Revenue Code to collect tax information, withhold taxes, and report to the internal Revenue service when a content creator has earned royalty revenue from viewers residing in the United States.
YouTube has created a video to elaborate on the changes and help creators provide their tax information (7).
It has also tweeted (8) about the new rules and its other social media channels.
The Reaction from Creators
Several creators criticize YouTube for its new tax deduction plan, considering that it is already taking a cut of revenues generated from ads it offers on the platform. The change is also recognized to largely affect small YouTube creators who don’t have millions of subscribers to attract native sponsors for advertisements.
In an email statement to NDTV, when Gadget 360 reached out for a response to creators’ criticism, a YouTube spokesperson stated that. Under US law, Google must withhold taxes when non-US content creators earn income from viewers residing in the United States. The company asks its creators to submit relevant tax information to determine whether any US withholding taxes are applied. Where applicable, the company would withhold US taxes from creators’ revenue from later this year (9).
Once Google initiates withholding taxes, content creators will see the finalized amount withheld in their regular AdSense Payments Transactions Report (10).
YouTube offers monetization to content creators under the YouTube Partner Programme that need creator accounts to have over 4,000 public watch hours in the past 12 months and more than 1,000 subscribers. However, last year, it updated its terms of service to run ads on videos made by small creators who are not a part of the YouTube Partner Programme and are not making any direct earnings from the platform. Notably, the move also invoked anger among some creators who were not generating any Google AdSense revenues.
Once you sign-in and get to your Google AdSense account, you would see the required tax info message notice in an outlined rectangle box and under the notification bell icon. And as you click to fill in the required information, you will see a complex W-8BEN, for individuals, or W-8ECI/W-8BEN-E, for legal entities, businesses, or companies, forms that need some important business and personal information.
If you hold an individual content creator account, this is a lot of personal and legal information to submit. In certain cases, you may also require a lawyer or tax advisor for help from your respective government department to fill out all the data that is needed properly.
In the third step of the US tax information form, you will get an option about the existing tax treaty between your country of residence and the United States. How much tax deduction will that offer depends on individual countries and regulations.
For India, which has a tax treaty with the United States, you need to provide your PAN, Permanent Account Number, number. It is worth noting that every country is different, and one needs to consult with respective tax advisors when it comes to international experiences.
Note: Images and Selected Options are for Demonstration/Example Purposes Only!
It is also worth noting that in the future, if you fail to submit your US tax info form, Google may also disable your AdSense account. It remains to be seen.
We can say one thing for sure is that the world we live in is changing at a rapid pace, for better or for worse.
What is Happening?
YouTube stated that the company is updating its TOS for content creators outside of the United States. Earnings from the platform would be considered royalties from the US tax perspective. According to the US law’s requirements, it may impact the way earnings are taxed, and Google would need to withhold taxes (12).
It is worth highlighting that economic war is happening between Google and European Union, Google and France, and Google and Australia (13). These wars are further heated amid the global pandemic and economic crisis. And each country is asking for a piece of (our!) cake.
At this moment, there is no clarity whether the affair is Google’s or IRS, Internal Revenue Service’s doing, which is controlled by the department of the treasury and the US government administration. In other words, to explicitly collect taxes of any business activity on its territory.
Previously, content creators’ earnings from YouTube were classified as services, but they would be treated as royalties from now on (14). We can say that Google is simply submitting to the law in this case, but who provokes the change and why is yet to be revealed.
YouTubers, bloggers, vloggers, website, and app owners who earn most of their income from an audience located in the US would probably* experience a drop in their revenue later this year.
However, it is not true for certain countries such as the UK, Canada, Iceland, Ireland, Finland, Denmark, France, Greece, Germany, Hungary, Japan, Norway, Slovenia, Switzerland, and several other countries. These countries should not experience any changes because of the existing 0% US Income Tax Treaties.
Several other countries would have 5%, 10%, or 15% tax relief rates, effectively reducing the tax to manageable levels. The maximum amount of 30% tax would impact content creators from countries that do not have a tax treaty in effect with the US government.
Click Here to Read More About United States Income Tax Treaties
We could say for certain that the upcoming changes by Google are just the beginning of the end of lower prices for goods and services on the ‘mighty’ internet. In years to come, every country will probably introduce internet tax rates in one way or another, and many countries are already doing so, as far as we can witness.
For instance, eBay services are already taxed in several countries. Whenever you sell something on the oldest trading internet platform, fees are surged automatically by a specific country’s tax amount (15).
Another example is popular stock photography sites that have implemented this practice for years. Additionally, several online learning platforms used by freelancers also have automatic tax withholding practices.
Amazon also did something similar a few years ago when it shifted its business operations for customers residing in Europe and updated its tax policy (16).
Nevertheless, the change would effectively impact all English-based YouTube channels, blogs, and websites, from individuals and companies residing outside the US. If you are not a part of an MNC, multi-channel network, you would need to submit correct tax information.
One can always opt-out and choose to ignore that, but you would be treated less favorably in this case.
We don’t need to say that the move would affect AdSense’s users globally, including websites and blogs generating revenues from US base audiences. It would also complicate their local text submissions, forms, and regulations.
The legal document this tax is based on is called Internal Revenue Code (17). It seems to be almost a decade old; however, it seems little contractor to text earnings by organizations and individuals who reside outside the United States regardless of where the customer comes from.
Imagine if every country in the world decides to take the same actions. Imagine if you had to pay taxes for each country individually. Needless to say, your earnings would quickly evaporate. And more importantly, your tax management affair would become a nightmare since these measures are effectively designed to limit money flow from one country to another via imposed taxes.
We can say for sure that strange and interesting times are ahead of us.
We can certainly argue about whether this is fair or not. The issue is not only about the text itself but the fact that these measures put some countries and ultimately its users in clear advantage over the others. But such is the state of affairs in this world; there is a lot of injustice and glitters wherever you go, and the new tax policy is also not an exception.
In the future, a global treaty between nations may fix this problem for good.
Takeaway: The Decision is Yours
You can decide to submit a proper tax information form and pay up to 30% tax on your earnings from your US-based viewers alone. Your earnings from other countries would remain the same before the change and would be subjected to your local country of residence regulation as they were previously.
You can choose not to submit a proper tax information form. In this case, YouTube and Google would assume that you are a legal US resident. Your YouTube Channel and AdSense account will be subjected to a 24% global tax if you are an individual or 30% global tax for a business and legal entity. Hence, it is essential to submit your tax information form as soon as possible to avoid extra tax deduction from your earnings when the new law comes into place.
If you are a US resident living outside the United States, your tax obligations may still be affected. You can reach out to your tax advisor to clear any confusion about the matter in such a case.
Make sure you make the right decisions while filing your Google AdSense tax form!