How to File Your Twitch Taxes in 2021
The terms Twitch taxes (or streaming taxes, since they apply to any streaming platform) has caused a lot of confusion. There are those who argue that there is nothing to pay, and there are others who believe there is no way to deduct anything from the bill. We have therefore decided to inform our readers and clients about twitch taxes better so that filing taxes for twitch becomes smooth.
What Is Twitch and How Does It Work?
The app and website of Twitch are very popular among gamers. The site allows people to join, broadcast their gameplay and live stream it to the world. If the broadcast is enjoyed, viewers and supporters can send a donation to the gamer who broadcasts it resulting in stream income. Twitch users are not just discovered by their talent, they're found by their charisma or likeability. There is more to Twitch than just gaming; you can share art, talk shows, and music as well. Gamers, however, represent a large percentage of Twitch partners.
Do You Have To Pay Taxes for Twitch Affiliate?
Users with significant followings can become Twitch Partners and Twitch affiliates by paying a monthly fee and using Twitch to earn money from ads, donations, and other sources. Hence such individuals are subject to Twitch Partners taxes and Twitch Affiliate taxes.
Are Twitch Users Required To Pay Taxes?
For any earnings that streamers receive while broadcasting on Twitch, they are required to pay twitch taxes. A streamer's take-home pay will depend on how much they earned that year minus their deductions.
How Do Twitch Donations and Taxes Work?
The majority of people make the mistake of assuming that donations aren’t taxable. However, Twitch donations taxes are a reality and they must be accounted for as income. As long as you make income from Twitch, it is considered income by the IRS.
Are Twitch Streamers Subject To Taxes?
In the United States, you are required to pay taxes on your earnings if you're earning any money from Twitch or any other platform. Any revenue received from ads, donations/tips, sponsors, or any other payment method is included in this list.
Does Twitch Qualify as Self-employment?
A streamer is considered a self-employed individual. Among your responsibilities are building your community and receiving donations. Taxes will need to be paid on tips received.
Is Twitch Required To Report to the IRS?
The IRS is informed of Twitch's expenses and how much streamers were paid. You are responsible for filing your taxes.
What’s New in Twitch Taxes?
Rather than reporting nonemployee compensation on Form 1099-MISC to U.S. payees (such as service income), the Internal Revenue Service is now requiring that the tax is reported on Form 1099-NEC to such payees. The 1099-MISC continues to report royalty income. For example, royalty and service income may be reported on Form 1099-MISC and 1099-NEC, which may result in two different tax forms for you.
How Are Hobby Streamers Taxed?
If you made more than $600 while doing hobby activities, Twitch should send you 1099. Those who earn money from their hobbies should report the earnings in the taxable earnings section of Form 1040 (line 21 of the form - "Other taxable earnings").
Self-employment taxes are not applicable to hobby income and only income tax is.
How Are Career Streamers Taxed?
Federal Taxes payable by career streamers include self-employment and income taxes. Taxes on self-employment are set at 15.3%. According to the IRS, these payments are sent to the streamer's "business" (even if it is actually themselves).
The employer and employee Social Security and Medicare taxes have to be paid when the business pays the streamer. The Social Security and Medicare taxes are 6.2% and 1.45%, respectively. Together, the social security and Medicare taxes total 12.4% and 2.9%, respectively. In the case of self-employment, the tax is calculated using net earnings (total earnings minus the relevant expenses).
If the streamer made money during the year, income tax would be calculated based on the amount less any deductions and expenses that would have been applicable.
Unlike the self-employment tax, income tax is not calculated as a percentage of income. The amount of income tax that a person must pay depends on their income. An income tax table is used to determine this.
Only itemized deductions allow state taxes to be deducted from federal income taxes.
What Deductions Are Career Streamers Entitled To?
The cost of purchases and services (at least a portion of them) might be deducted if you stream to build your career. The following expenses are typical claims:
Business expenses that meet the criteria of ordinary and necessary and are not capital expenses can generally be deducted in full.
Streaming Equipment
Many of the equipment expenses associated with streaming can be deducted. You can deduct equipment that you use exclusively for running your business. As long as it is only used for streaming activities, equipment such as cameras, microphones, computers, or desks may be deducted.
In the event that equipment is upgraded, an expense may be deducted, but the equipment must be reported as income if it is sold. Standard deductions and itemized deductions are also available.
Use of Internet and Programs
It is possible to claim a partial deduction for expenses related to a business operation that can be used for personal purposes. The internet is a good example.
Since most streamers and content creators transmit from home, other non-streaming activities usually take place on the internet. Therefore, only part of an internet bill would be deductible. Essentially, this means that the content creators must estimate the percentage of internet usage associated with streaming or personal use.
In the case of streaming, the percentage is deductible. That holds true for any equipment or bills you may have or may incur.
Payments for Rent/Mortgage
In the case of a streaming or editing room that is allocated specifically for business purposes, even a portion of a rent or house payment may be considered business expenses.
Services Commissioned
A deduction may also be made for any wages paid to others who assisted in editing or creating a stream. Furthermore, tax payments can be deducted from wages.
Funds Donated to Charity
Donations up to $600 can now be deducted without needing to itemize starting in 2021. As long as you keep track of exactly how much you spent on charity above that amount, everything above that amount can be claimed. Channels that regularly stream charity can take advantage of this benefit. There are other circumstances where you could possibly deduct higher amounts of donation as long as IRS standards are being met.
What Forms Are Involved in Twitch Taxes?
Twitch taxes will be received or processed using the following forms:
- Form 1099 – Twitch or another royalties payer sends you a 1099 if you have made more than $600 from their platform. This form will be sent by Twitch or another royalties payer to the IRS.
- Form 1040 – Form for filing a standard income tax return.
- Form 1040 SE – used for estimating taxes and making quarterly payments.
- Schedule SE – used for determining the amount of self-employment taxes you owe.
- Schedule C – used to report both profits and losses by a business (reports revenue and expenses).
How Does Twitch Calculate Its Withholding Tax Rate?
When non-US persons receive certain payments, Twitch is required by the IRS to collect 30% of the payment. You will be automatically billed for any withholding tax that is applicable.
Certain circumstances may qualify you for a reduced rate of U.S. withholding tax. If your country of permanent residence has a tax treaty with the U.S., you may be able to cut your tax bills. Detailed information on tax treaty countries and their applicable rates can be found in IRS Publication 515.
What Information Should You Give Twitch as a Us Resident?
Each U.S. payee, regardless of whether they are a non-profit or tax-exempt organization, must provide their U.S. taxpayer information to Twitch. A valid U.S. tax identification number will be required.
- A nine-digit Social Security Number (SSN),
- Employer Identification Number (EIN), or
- Individual Tax Identification Number (ITIN)