May 19, 2023

Tunecore Withholding Tax: Guide for Non-US Taxpayers

Contents

As an independent musician, there’s a good chance you use Tunecore to distribute your recordings to various streaming platforms. Tunecore collects royalties from the platforms and sends you payouts. 

At year-end, if you’re not a United States resident, Tunecore will send you a tax document called the Form 1042-S and, depending on where you live, this form might show that you’ve had U.S. taxes withheld from your payouts.

In this guide I’ll break down the Tunecore withholding tax, explaining why taxes were withheld and how you can potentially lessen your exposure to U.S. withholding taxes.

Why taxes were withheld from your Tunecore payouts

There are two reasons why Tunecore withheld taxes from your royalty payouts:

  1. No Tax Treaty - Your country of residence doesn’t have a tax treaty with the U.S. or the active treaty doesn’t include royalty income. You might be able to claim a credit for foreign taxes paid on your home country’s tax return.
  2. Incorrect W-8 BEN - Your country of residence has a tax treaty with the U.S., but you provided an incorrect W-8BEN when registering for Tunecore payouts. You might be able to claim a refund from the Internal Revenue Service (not Tunecore).

Under United States tax law, your Tunecore royalty payouts are U.S. source income. 

U.S. nonresidents who aren’t U.S. citizens must pay a 30% withholding tax on their U.S. source income, unless a tax treaty between their home country and the U.S exempts them from the withholdings tax or qualifies them for a lower tax rate.

As a withholding agent, Tunecore is liable to the IRS for withholding taxes associated with royalty payouts to its U.S. nonresident users. In other words, if you’re subject to the 30% withholding tax, Tunecore must withhold taxes from your royalty payouts to comply with U.S. tax law.

How to avoid the Tunecore withholding tax

You can avoid the Tunecore 30% withholding tax by claiming an exemption or a reduced rate of withholding.  

You can claim an exemption if your country of residence and the United States have a tax treaty that exempts royalty income from U.S. sources. If this is the case, then Tunecore won’t withhold taxes from your payouts or will withhold at a rate lower than 30%.

To claim an exemption, you must provide Tunecore with an accurate Form W-8BEN certifying that you reside in a country that exempts you from the withholding tax or qualifies you for a reduced rate of withholding.

Before submitting a Form W-8BEN you should confirm whether a tax treaty exists between your country and the United States. You can confirm by reviewing the list of treaties on the Internal Revenue Service website and reading the applicable treaty. 

You can submit a Form W-8BEN to Tunecore through Payoneer, Tunecore’s payment processor. Consult with a knowledgeable tax professional if you need help preparing your Form W-8BEN.

How to get a refund of Tunecore withholding taxes

At the end of year, Tunecore will send you a tax form called the Form 1042-S. This tax form reports your Tunecore royalty payments and the taxes that Tunecore withheld from the payouts. The Internal Revenue Service also gets a copy. 

After receiving the 1042-S, your first step should be to review the list of United States income tax treaties. Find your home country and review the tax treaty to confirm that U.S. sourced royalties are exempt from withholding taxes.

If you’re exempt from U.S. tax withholding, you can file a nonresident tax return (Form 1040-NR) with the Internal Revenue Service to claim a refund of the taxes Tunecore withheld from your payouts. 

You should also provide Tunecore with updated tax information to avoid withholdings on future payouts.

You have up to three years after April 15th of the year following the year on your 1042-S to file Form 1040-NR. For example, if your 1042-S is for 2023, you have until April 15th, 2027 to file Form 1040-NR.

You don’t need to file Form 1040-NR, or any other U.S. form, if your 1042-S shows $0 in Box 10. This means no tax was withheld. 

File taxes in your country of residence

You’re ineligible for a withholding tax refund if you’re not covered by a tax treaty that exempts you from the withholding tax. However, you might be able to claim a tax credit on your home country’s tax return.

To avoid double taxation, some countries will allow you to take a credit for taxes paid to another country. The foreign tax credit will offset the taxes you‘ll owe to the tax authority of your home country. 

Refer to Box 7a in Form 1042-S to report the amount of U.S. taxes you paid when filing taxes with your country of residence..

If your royalty income is business income, you might be able to take deductions that decrease your taxable income. Use Box 2 of Form 1042-S to report the income you received from Tunecore.

You should retain your Form 1042-S to substantiate your tax credit or deduction in the event that your home country’s tax authority audits your tax return.

Frequently asked questions (FAQs)

Which tax form do I give to Tunecore (W-9 or W-8BEN)?

U.S. citizens must provide Form W-9 to Tunecore regardless of whether they live inside or outside of the United States. Nonresidents, who aren’t U.S. citizens, must provide Form W-8BEN to Tunecore.

Why do I need to submit a W-8BEN to Tunecore?

Tunecore needs a Form W-8BEN to establish your country of residence. Your home country might have a tax treaty in place with the U.S. that exempts you from the 30% withholding tax on U.S. source income, such as Tunecore royalties.

Do I need an ITIN to avoid Tunecore withholding taxes?

Applying for an ITIN won’t exempt you from Tunecore withholding taxes. You’re only exempt from the Tunecore withholding tax if you reside in a country that has a tax treaty with the United States or if you reside in the United States. You can provide your tax ID within your home country when submitting your W-8BEN to Tunecore. You don’t need to apply for an ITIN.

This content is for informational purposes only and does not constitute legal, business, or tax advice. You should consult your own attorney, business advisor, or tax advisor regarding matters mentioned in this post. We take no responsibility for actions taken based on the information provided.

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