Removing US Withholding Tax from your royalties (Part 2)

Intro and disclaimer: I am a UK-based writer. Towards the end of 2012 I began proceedings to strip US Withholding Tax from any royalties earned through US companies. This short series of blog posts documents the process I followed. The usual caveats apply: this is the internet, folks, so you shouldn’t consider this to be professional advice. That said I hope you still find these posts of use. Okay, let’s get stuck in.

Part Two: Applying for a US Tax Identification Number

In the previous part I discussed what US Withholding Tax entailed, and gave an overview of the steps non-US residents need to take in order to remove or reduce the tax from their earnings.

In this post I’ll go into more detail on these steps, specifically in applying for a Taxpayer Identification Number. These posts are written from the perspective of an individual tax payer, not a company. (Amazon’s KDP help pages contain a decent amount of information for those who wrap up their tax affairs within a company.)

Step 1 is to gather some appropriate ID. You’re going to need it to accompany your application form, because Uncle Sam will want to know who you are. If you have a valid passport then that should be all you require, otherwise you’ll need ID to prove your foreign status and identity, for example a birth certificate and a driver’s licence. My passport expired recently but I decided to bite the bullet and invest in a new one, if only for all those American book signings I’ll be doing in the next ten years. 😉

Step 2 is to download and complete a W-7 form from the IRS website. (Here’s a link: http://www.irs.gov/pub/irs-pdf/fw7.pdf ) The W-7 form is an editable PDF file that can be (mostly) completed on screen and saved on your computer. Why “mostly”? Well, let’s go through completing this form and you’ll see why.
(Note: this guide is for the January 2012 revision of the W-7 form, and remember I’m assuming you are an individual UK taxpayer.)
* In the set of tick boxes a – h you need to tick boxes a and h.
* Next to box ‘h’ enter EXCEPTION D ROYALTIES on the dotted line
* Underneath that enter the treaty country as UNITED KINGDOM
* To the right of that, under treaty article number, enter 12
* In line 1a enter your first name, middle name(s) and surname in the appropriate boxes
* If you were born under a different name enter it in line 1b – again first name, middle name(s) and surname.
* In line 2 enter your house number and street name in the first part, e.g. 123 ACACIA AVENUE, and then the remainder of your address underneath, e.g. NORWICH, NORFOLK, UNITED KINGDOM, NR99 9ZZ
* You can ignore line 3 unless you have another non-US address that acts as your chez away from chez, in which case enter it in much the same fashion as you did your main address in line 2.
* In line 4 enter your date of birth in MM/DD/YYYY format, e.g. 05/04/1990 for 4th May 1990. Remember this is a US form you are filling out. In the box to the right of that enter your country of birth, for example UNITED KINGDOM.
* Oddly, line 5 is actually a box further along to the right. In here indicate whether you are male or female.
* Line 6 is a biggie, so I’ll split it out further:
—> For 6a enter your country of citizenship, e.g. UNITED KINGDOM
—> For 6b enter your National Insurance Number, e.g. AB123456C
—> Leave 6c blank unless you have a US visa
—> For 6d enter your ID details. Assuming you are including your passport, tick the passport box, for “Issued By:” enter UK (there isn’t enough room to type UNITED KINGDOM), for “No.:” enter your passport number, e.g. 123456789, and for “Exp. date:” enter your passport’s expiry date, again in MM/DD/YYYY form, e.g. 12/13/2014.
—> For 6e, assuming this is the first Tax Identification Number you are applying for, tick the No/Do Not Know box.
—> Lines 6f and 6g can be left blank if you answered no for 6e.
* Sign and date the form (remembering MM/DD/YYYY). Enter your full telephone number. For my form I had to manually write the number as +441603123456 because the form only allowed 12 characters to be input.

Your completed W-7 form will look something like the example shown below. (Click for a larger image.)

Step 3 – With your W-7 form completed you need a letter (signed, and on official letterhead) from someone in the US stating they are going to pay you royalties. Smashwords will give you access to their letter once you have accrued $10 in royalties, whereas Amazon offer their royalties letter for all – just fill in your name and the date (again in MM/DD/YYYY format).

Step 4 – Send off your application. By this point you should have: 1) a letter from, say, Amazon; 2) your completed W-7 form; and 3) appropriate ID (I’m assuming your passport). These all need to find their way to the IRS so they can process your application. You could stick them all in an envelope and send them off to the States, but perhaps a better way would be to use the US Embassy. They can create a notarised copy of your passport, check your application for obvious errors and forward everything on to the IRS. They then return your passport quickly by Special Delivery. (I got mine back in 4 days.) All this for a fee of exactly zero pence too – you just need to pay to get the documents there. (Special Delivery cost me £5.90.)

I’d strongly recommend writing a covering letter to accompany your documents. Here’s one I used that seemed to do the trick:

Dear Sir/Madam,

I would like to apply for an Individual Tax Identification Number in order to strip US Withholding Tax from any royalties I receive from Amazon for my self-published work.

I have completed the W-7 form, which please find enclosed along with my passport and a letter from Amazon regarding payment of royalties.

Please could you arrange for a notarised copy of my passport to be forwarded to the IRS along with my W-7 form and letter? If there are any problems with my application please do not hesitate to contact me on ______________.

Thank you in advance for your help.

Yours faithfully

(Before sending everything off I would recommend taking a copy of your W-7 form. If the IRS come back with queries at least you can see what you sent.)

As mentioned you should receive your passport by Special Delivery in around a week. Your W-7 application form, if successfully processed, should yield a US tax number in around 7-8 weeks. Once you have your tax number you can move onto the next stage.

Coming next in Part 3: Completing W-8BEN forms for each publishing platform

Final note: If you see anything that is incorrect in any of these pages please let me know. It is not my intention to misinform!