Torque and Taxes
by Jerane Alleyne · in Torque Game Engine · 03/30/2003 (5:39 pm) · 13 replies
This is probably something I'll be discussing with a CPA, but I wanted to bring this up with the GG guys first.
For those of us working on a game under the Garagegames banner, I was curious as to how the royalties we would get from a released game would impact on how we will do our taxes. Since we're not really employees of Garagegames, W-2's wouldn't be right I'd guess. Would we have to use 1040's (I think thats the right type)? Does GG take taxes out of our royalty checks or anything like that?
I know there are factors, such as the amount we'd get that year would have to be the minimum amount needed to file, but just wanted to ask being on the safe side. I would assume that we couldn't just not file the income from our games :D
Hope this question makes sense!
Thanks
For those of us working on a game under the Garagegames banner, I was curious as to how the royalties we would get from a released game would impact on how we will do our taxes. Since we're not really employees of Garagegames, W-2's wouldn't be right I'd guess. Would we have to use 1040's (I think thats the right type)? Does GG take taxes out of our royalty checks or anything like that?
I know there are factors, such as the amount we'd get that year would have to be the minimum amount needed to file, but just wanted to ask being on the safe side. I would assume that we couldn't just not file the income from our games :D
Hope this question makes sense!
Thanks
#2
They will report the royalties to you on an IRS form at the end of the year and it's up to you to file your tax return and pay any taxes due.
If you do not provide them a social security number, then they are required to withhold 20% of your royalties and send them to the IRS as tax withholdings. You are still required to file a return and compute your taxes due (may be more or less than 20% depending on how much you made throughout the year).
A significant problem can arise if you make substantial royalties during the year. If you don't pay quarterly estimated tax payments, you may be subject to penalties for underpayment of your taxes. I'm not sure what the exact threshold is so if you start getting royalties, be sure to consult a tax advisor to avoid any problems down the road.
With the IRS, it's best to be safe up front. They have a tendency to assess interest and fines first... and then maybe ask questions later.
03/31/2003 (5:07 pm)
Generally a company will pay you royalties and if you provide them with a valid social security/tax id number, they will not hold out taxes.They will report the royalties to you on an IRS form at the end of the year and it's up to you to file your tax return and pay any taxes due.
If you do not provide them a social security number, then they are required to withhold 20% of your royalties and send them to the IRS as tax withholdings. You are still required to file a return and compute your taxes due (may be more or less than 20% depending on how much you made throughout the year).
A significant problem can arise if you make substantial royalties during the year. If you don't pay quarterly estimated tax payments, you may be subject to penalties for underpayment of your taxes. I'm not sure what the exact threshold is so if you start getting royalties, be sure to consult a tax advisor to avoid any problems down the road.
With the IRS, it's best to be safe up front. They have a tendency to assess interest and fines first... and then maybe ask questions later.
#3
Jeff Tunnell GG
04/01/2003 (8:25 am)
Any game that gets published by any publisher, including GarageGames, is done under a subcontract basis, i.e. no taxes are taken out. We do need a SSN or tax ID number from our developers in order to report the royalties paid out to the IRS.Jeff Tunnell GG
#4
Now just have to bang this game out....
04/04/2003 (10:16 pm)
Thanks a lot guys. Appreciate the info :))Now just have to bang this game out....
#5
1 - Obtain and and complete IRS Form W-7 to receive an ITIN number. You will need to either send in original ID (ie. Passport) or send in notarized photocopies. Non-US notaries are NOT accepted, so a trip to the Embassy or Consulate is in order.
2 - after the IRS sends you your ITIN number, you need to fill out Form SS-4, and send it in, including the ITIN number on it.
3 - The IRS will send you back an EIN number.
4- Then you need to fill out Form W-8BEN, including the EIN number on it, to obtain your Tax Treaty privilige (so the publisher can *not* withhold your taxes), and send it to your publisher so they can submit it to the IRS.
I'm currently going through this mess and it is an absolute fiasco. The IRS chaged their rules (adding the ITIN requirement) after I was already in process, causing it to start all over from the beginning. Now I have to find time to visit the Consulate, which is not going to be easy...
(BTW don't phone the IRS for help from outside the US regarding the ITIN. The number they give you is NOT toll-free, and I just spent an hour and 9 minutes this evening on hold for what amounted to a 90 second conversation).
To say that this has soured me on the idea of going through a US publisher would be understating how I feel right now...
05/06/2003 (5:29 pm)
If you are a non-US person, like me, you have quite a gauntlet to run. In order for a US-based publisher to NOT have to with-hold taxes, you need to:1 - Obtain and and complete IRS Form W-7 to receive an ITIN number. You will need to either send in original ID (ie. Passport) or send in notarized photocopies. Non-US notaries are NOT accepted, so a trip to the Embassy or Consulate is in order.
2 - after the IRS sends you your ITIN number, you need to fill out Form SS-4, and send it in, including the ITIN number on it.
3 - The IRS will send you back an EIN number.
4- Then you need to fill out Form W-8BEN, including the EIN number on it, to obtain your Tax Treaty privilige (so the publisher can *not* withhold your taxes), and send it to your publisher so they can submit it to the IRS.
I'm currently going through this mess and it is an absolute fiasco. The IRS chaged their rules (adding the ITIN requirement) after I was already in process, causing it to start all over from the beginning. Now I have to find time to visit the Consulate, which is not going to be easy...
(BTW don't phone the IRS for help from outside the US regarding the ITIN. The number they give you is NOT toll-free, and I just spent an hour and 9 minutes this evening on hold for what amounted to a 90 second conversation).
To say that this has soured me on the idea of going through a US publisher would be understating how I feel right now...
#6
Hmmm...
I might have to look at other ways of publishing my game.
Does anyone know alternatives to this process above that means I can still get my game published with GG (or another US publisher.) ?
I'm a British and New Zealand Citizen...
Nick
07/20/2003 (5:36 pm)
Is this really what we have to go through to get paid!Hmmm...
I might have to look at other ways of publishing my game.
Does anyone know alternatives to this process above that means I can still get my game published with GG (or another US publisher.) ?
I'm a British and New Zealand Citizen...
Nick
#7
Can GG tell us more on this ? Any way they can streamline the process for teams based outside the US ? At least have a section that spells out the requirements for publication with GG, since it's considered like publishing in the US...
I think it's not efficient to have every team research the issue on their own : having someone based in the US do the research makes a lot more sense.
Is it different for people in countries with Free trade agreements with the US ? (ie Canada and Mexico)
What about people in the European Union ?
And all the others ?
I mean, I don't mind having hoops to jump through, but in my experience, the people at the Consulate are surprisingly fairly ignorant of all the issues they're supposed to take care of, at least in my personal dealings with the US Consulate in Montreal : I didn't get to speak to anyone who seemed to know anything definite about anything...
Not something I want to do again, on a topic (ESD) they'll probably know even less about than travel restrictions, etc.
Shame !!!
07/21/2003 (8:37 am)
Oh my, this is relatively bad news indeed....Can GG tell us more on this ? Any way they can streamline the process for teams based outside the US ? At least have a section that spells out the requirements for publication with GG, since it's considered like publishing in the US...
I think it's not efficient to have every team research the issue on their own : having someone based in the US do the research makes a lot more sense.
Is it different for people in countries with Free trade agreements with the US ? (ie Canada and Mexico)
What about people in the European Union ?
And all the others ?
I mean, I don't mind having hoops to jump through, but in my experience, the people at the Consulate are surprisingly fairly ignorant of all the issues they're supposed to take care of, at least in my personal dealings with the US Consulate in Montreal : I didn't get to speak to anyone who seemed to know anything definite about anything...
Not something I want to do again, on a topic (ESD) they'll probably know even less about than travel restrictions, etc.
Shame !!!
#8
Nothing is ever easy .... heh
Tom.
07/21/2003 (8:37 am)
Has anyone got any further information on this for non-US citizens? Places (on the net) to find more information would be very useful. Also, any idea of the kind of time scale to get through the whole process (I'm assuming it takes a couple of months at the minimum) would be handy to know.Nothing is ever easy .... heh
Tom.
#9
I feel your pain Ken. :(
- Melv.
07/21/2003 (8:49 am)
It's interesting to see how much trouble this really is. The only good thing is that one of our team found the forms on the IRS web-site but they are pretty nasty and by what Ken describes, troublesome.I feel your pain Ken. :(
- Melv.
#10
08/03/2003 (2:32 am)
Not that im planning on publishing anything anytime soon... but! do these rules apply to minors? ^_^
#11
For Non-US Citizens, start here to get an ITIN number: www.irs.gov/pub/irs-pdf/fw7.pdf
Application for IRS Individual Taxpayer Identification Number
There are instructions included in the doc about how to fill out the form. And remember, they need original Identification documents, or notarized copies, and the notary must be a US certified notary public.
Once you have the ITIN number, you will be set for when the time comes for your publishing agreement or contract. Your publisher will need you to fill out this: www.irs.gov/pub/irs-pdf/fw8ben.pdf Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
include your ITIN number on it, then send it to your publisher. They will probably ask you for this form, and send you a copy to fill out along with your copies of your agreement or contract to sign, so you should probably wait for that moment.
If you get one thing wrong on your docs, the IRS will mail it back with an ambiguous checkbox on a form sort of telling you what you did wrong. You can, of course phone them in Pennsylvania to get help. The people are very nice to talk to on the phone. However, it can be a long wait (I waited 90 minutes, 45 minutes and 68 minutes respectively-- the two shorter waits happened when I called before 10 am, EST) and the call is NOT a toll-free call. Don't call from a pay phone!
Summary
After all this, it appears the fastest way to do all this is as follows:
1. Obtain a passport, or use your existing one providing it is valid for at least another 8 weeks.
2. Send your passport along with the w-7 to the IRS (address is on the form). This is the approach preferred by the IRS. Stay away from the "notarized copies of two pieces of ID" approach--its a killer.
3. The IRS will send back your ITIN number with the passport.
4. Get a publishing contract (this would seem to be the easy part :-) ) and supply your shiny new ITIN to your publisher.
5. Profit !
-------------------------------------------------------------------
Caveat
I was told originally by the IRS that I had to obtain an EIN number
(here:www.irs.gov/pub/irs-fill/fss4.pdf) Application for Employer Identification Number
But now I'm led to understand that the ITIN number will do in place of the EIN number if you have the ITIN number, and this only makes sense, but early on, I was told the EIN was the absolute must have item. However, this means that steps 2 and 3 in my earlier above reply were unnecessary, and they sure wasted a lot of my time. Looking at the current w-8BEN form, it has a place for indicating either the ITIN or the EIN. Hopefully in another week or two, I will have both: an ITIN number and a EIN number.
I've been at this since the 14th of April this year. I think I am only about a week away from the light at the end of the tunnel...When I have company over I like to show them the paperwork exchange with the IRS as a kind of 'coffee table' conversation point. People are amazed.
08/03/2003 (6:49 am)
These rules apply to everyone. The hoops are more substantial for Non-US people. Your country has to have a tax treaty with the US in order for you to get all of your money. If your country has no tax treaty, you will never see your 30% that the publisher is required to withhold. I'm in Canada, and we have the tax treaty. And NAFTA, but that doesn't seem to be helping.For Non-US Citizens, start here to get an ITIN number: www.irs.gov/pub/irs-pdf/fw7.pdf
Application for IRS Individual Taxpayer Identification Number
There are instructions included in the doc about how to fill out the form. And remember, they need original Identification documents, or notarized copies, and the notary must be a US certified notary public.
Once you have the ITIN number, you will be set for when the time comes for your publishing agreement or contract. Your publisher will need you to fill out this: www.irs.gov/pub/irs-pdf/fw8ben.pdf Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
include your ITIN number on it, then send it to your publisher. They will probably ask you for this form, and send you a copy to fill out along with your copies of your agreement or contract to sign, so you should probably wait for that moment.
If you get one thing wrong on your docs, the IRS will mail it back with an ambiguous checkbox on a form sort of telling you what you did wrong. You can, of course phone them in Pennsylvania to get help. The people are very nice to talk to on the phone. However, it can be a long wait (I waited 90 minutes, 45 minutes and 68 minutes respectively-- the two shorter waits happened when I called before 10 am, EST) and the call is NOT a toll-free call. Don't call from a pay phone!
Summary
After all this, it appears the fastest way to do all this is as follows:
1. Obtain a passport, or use your existing one providing it is valid for at least another 8 weeks.
2. Send your passport along with the w-7 to the IRS (address is on the form). This is the approach preferred by the IRS. Stay away from the "notarized copies of two pieces of ID" approach--its a killer.
3. The IRS will send back your ITIN number with the passport.
4. Get a publishing contract (this would seem to be the easy part :-) ) and supply your shiny new ITIN to your publisher.
5. Profit !
-------------------------------------------------------------------
Caveat
I was told originally by the IRS that I had to obtain an EIN number
(here:www.irs.gov/pub/irs-fill/fss4.pdf) Application for Employer Identification Number
But now I'm led to understand that the ITIN number will do in place of the EIN number if you have the ITIN number, and this only makes sense, but early on, I was told the EIN was the absolute must have item. However, this means that steps 2 and 3 in my earlier above reply were unnecessary, and they sure wasted a lot of my time. Looking at the current w-8BEN form, it has a place for indicating either the ITIN or the EIN. Hopefully in another week or two, I will have both: an ITIN number and a EIN number.
I've been at this since the 14th of April this year. I think I am only about a week away from the light at the end of the tunnel...When I have company over I like to show them the paperwork exchange with the IRS as a kind of 'coffee table' conversation point. People are amazed.
#12
Thanks for bringing this up as If I were to move back to the UK I'll have to do a lot of research and try and avoid both countries holding their share of my royalties lol as I'd probably end up with almost nothing if they both took 30% heh.
09/17/2003 (3:46 pm)
I take it that if your not a US citizen but a permenant resident with SS number and authorized to work you don't have to jump so many hoops. Hope not anyway as there's a good chance that my game will be published here soon too, probably won't be a problem but if it is I might just have to let my wife colect for me :)Thanks for bringing this up as If I were to move back to the UK I'll have to do a lot of research and try and avoid both countries holding their share of my royalties lol as I'd probably end up with almost nothing if they both took 30% heh.
#13
Does anybody know anything about this - if the process is similar, easier or worse? If it is easier, registering a company might be a good way to go, as it probably will provide other benefits also compared to selling as an individual.
06/18/2004 (1:26 pm)
Just wondering, is this the same process or a different one if you have a company set up in whatever other country you are from (in my case Sweden)? It seems a bit odd to send in a passport for your company... =)Does anybody know anything about this - if the process is similar, easier or worse? If it is easier, registering a company might be a good way to go, as it probably will provide other benefits also compared to selling as an individual.
Torque Owner Thomas Glennow