Should you Apply Sales Tax as a Social Media Influencer?
The question of whether or not you need to apply sales tax as a social media influencer has been debated for years. Some people say that because the state doesn’t collect it, then you don’t have to either. Others argue that if they were a brick-and-mortar store, they would be required to charge sales tax. So what’s the answer?
Why do social media influencers need to pay attention to how they are taxed?
As a social media influencer, have you ever been asked to mention or review a product? Many companies want their products noted on social media outlets. It is estimated that by 2020 the market for consumer-generated endorsements will top $250 billion annually! That’s why so many people are using this as another way to earn income.
When a company pays an influencer it is considered taxable income. In most cases, they will be responsible for paying the taxes on that money themselves. If companies are not withholding or otherwise reporting this payment as taxable income, then the person being paid does have an obligation to report and pay self-employment tax (15.30%), including Medicare and Social Security.
How the tax law applies specifically to social media influencers
Companies can hire an influencer to take photos at one of their events; however, if that person says anything about the company or its products, that would be considered advertising. When it comes to advertising on social media outlets, most companies do not withhold income taxes from their influencers because they are working for a “discount” (e.g., free product) if paid in this way. But make no mistake; these individuals still need to claim the income and pay taxes on it.
What can you do about it if you’re a social media influencer who’s not paying taxes on your income?
If your tax bill adds up to more than $100,000, you should also consider filing for an automatic six-month extension on your taxes. If you owe more than $50,000 in back taxes and don’t file for this extension, the IRS can immediately seize funds from any bank account they know about (including joint accounts). This can result in your bank account being frozen, which will not only cause a huge inconvenience but can damage your credit as well.
Pros and cons of applying sales tax as a social media influencer
As with most things, there are benefits and downsides to the practice. The biggest upside is that you don’t have to deal with sending in quarterly payments or keeping up on your tax filings all year long. However, some influencers who opt not to pay sales taxes end up owing many back taxes when they finally do file their annual return. For more help understanding sales tax nexus, click here.
On the other hand, some influencers have found that by paying sales tax on their income, they are more transparent with consumers who may feel deceived if they see a product review without it. Paying taxes will also help develop trust between you and your audience, vital to establishing yourself as an authority in your space. Ultimately, this is a personal decision that only you can make for yourself.
In conclusion, social media influencers have to pay attention to how they are taxed. If you’re being paid for a product endorsement, then it’s taxable income and must be reported on your tax return each year. Make sure you follow the rules, and you won’t have any trouble with the IRS.