Non-US Creators Forced to File US Tax Return
Hundreds of thousands of people earning money online are legally required to file a US tax return, or face hefty penalties.
US blogging website Medium.com sent thousands of letters to its international writers recently, saying they “must file a U.S. income tax return.”
This may be news to unsuspecting non-US writers, but according to the American Internal Revenue Service (IRS), anyone who has earned money from a US source automatically becomes a US taxpayer, regardless of citizenship or residence status.
As an Australian citizen, I was shocked to read this on a recent 1042-S form I received from Medium. I could not believe it.
How can this be legal? So I rang the Australian Taxation Office (ATO) to get answers.
When I finally got through to the right department, an ATO officer (and specialist on foreign income) George [surname withheld] confirmed this.
“I wouldn’t be arguing with them,” he said.
“They’re saying — well, we’re paying you an income of an American source, so you have to lodge your return.”
The IRS calls it Effectively Connected Income; payment (for goods, services or royalties) received by non-US citizens or businesses, referred to as “nonresident aliens”, from sources in the US.
The IRS can potentially prosecute non-US YouTubers, influencers, and freelancers who have never stepped foot on US soil for tax obligations — this may include hefty penalties.
The US-Australian tax treaty allows Australian citizens to claim the tax withheld by Medium (or any other American business) as foreign tax credits. But even if it protects its citizens from being double taxed, it does not protect them from the IRS freezing their accounts or seizing their property for outstanding tax returns.
This is true for other countries as well, because the IRS has wide-sweeping powers and tax-related agreements with a multitude of countries around the world.
Filing a US tax return also means wasting precious time and money applying for a Tax Identification Number (TIN) with the IRS, which is required before you can even file the tax return.
On top of that, you are forced to waste time and money lodging the damn thing year after year, which starts at A$279 for the most basic US tax return completed by an accountant in Australia.
However, many non-US citizens are still not aware of this obligation, nor that they have legal and financial exposure, which, at some point, can potentially ruin their business and their lives.
Because even if, for now, the IRS isn’t interested in chasing small accounts, when the threat of looming US default becomes more real, they might look to press the little guy.
There are other IRS pitfalls for unsuspecting non-US citizens, and in some cases, even the tightest tax treaties don’t protect them from paying US taxes and filing US tax returns, such as investment laws, particularly associated with retirement accounts.
It’s a sad reality when you wake up one day and realise that your government is doing nothing to protect you from the legislation of other governments. We are already forced to report to the US government when we open bank accounts — reading and signing forms to “prove” we are not US citizens.
But they get us anyway, and there’s nothing that anyone can do about this, apparently.
Disclaimer: Every effort has been made to provide you with the most up-to-date, accurate information. However, it is only a general guide and does not replace independent legal or financial advice. Please note that the law differs from state to state, territory to territory and and from country to country. This article does not cover in detail all the relevant laws as they pertain to this issue. Additionally, the law is always changing as legislation gets updated; meaning that some of the laws mentioned in this book might be out of date at the time of reading.
