The primary policy objective of taxing such gifts is the acknowledgment that items frequently sent by companies to influencers are not actual gifts, but instead are forms of non-cash compensation provided in exchange for exposure on the influencer’s platform.
Influencers usually have to pay taxes on gifts they receive. However, many gifts are given as promotional items with value that can be difficult to quantify. In these cases, influencers can estimate a reasonable low value for their receipt of the gift and report this in order to reduce their apparent income.
Failing to tax these gifts would undermine the objective of our tax system’s horizontal equality, as individuals earning revenue through monetary transactions pay taxes, while those receiving payments through non-monetary benefits, such as influencers, can stay tax-free. Non-cash benefits received by an influencer through bartering should generally be treated as business income and taxed.
The Tax Issue Is Always Fuzzy
If the services or products are merely given in exchange for an influencer’s endorsement and are not received through an influencer’s work, the tax treatment is less clear. Employment means the companies paying influencers do not pay the employer’s tax, instead, it is the influencer who is responsible for both income and self-employment taxes.
Where products are given to self-employed influencers, but without influencers providing any consideration (i.e., posting photos or reviews), tax treatment may vary depending on whether or not an influencer is considered a business. When the influencer is receiving a product for purposes of raising its profile, the tax treatment will depend on what consideration is given to the influencer, as well as its status as a worker.
Depending on the circumstances of the influencer, they may need to register with HMRC to file self-assessments and declare income in their tax returns. If an influencer provides services to companies based outside their home state, he or she may need to file an additional tax return in a non-resident state, depending on whether specific reporting requirements are met. If, however, a social media influencer operates from outside a state such as New Hampshire or Florida, they would owe federal taxes only.
State Taxes Apply on Influencer Earnings
You will also have to pay state taxes on influencer earnings unless you live in one of the states with no income taxes. If you do it some of the time, if you earn more than $600 (including gift value and freebies), you will need to pay an income tax. You will pay taxes on products that you review as a blogger or influencer unless the product is worth under $100.
Any items that you receive from a brand in exchange for reviewing should be reported as revenue using their fair market value. If a brand gives an influencer a product in exchange for a promo post on their Page, then the product’s value is considered as income. The gifts received by influencers may not always be equivalent to the retail value of the products or services provided.
Generally, if a content creator or influencer is expected to provide services in return for a gift, it can be taxed. Kamiu Lee said the gifts do not provide any assurances that the influencer will publish anything in exchange, and therefore, products or services are not considered taxable income. Influencer gifts typically qualify as barter transactions, as an influencer gets the goods or services in return for providing a business with advertising on its social media channels.
Independent Influencers Do Not Use a W-2 Form
Because an influencer is not a worker of the company they are marketing products to, they will not receive a W-2 for their earnings, nor are taxes collected on their behalf. Because influencers are independent contractors, they do not get a standard W-2 tax form, which is what traditional employees get at the end of each year.
Instead, Social Media Influencers are considered independent contractors by the IRS — a legal designation established by the IRS, which looks at the relationships between employers and the people they pay (financially and behaviorally) to determine how they should be taxed specifically.
This means that creators and influencers need to report all revenue generated, or pay a penalty for being overlooked. Influencers need to keep a record of expenses and revenue as they begin their entrepreneurial journey, so they do not end up struggling to pay taxes. Influencers will have to set aside funds for paying both taxes on their own, making the influencer’s accounts the first priority.
This means if you are an influencer who works with a lot of brands each year, and may earn under $600 from each collaboration, then it is likely the responsibility to track all revenue is on you. Projects under $600 still need to be reported as income on your tax returns, even if you are not receiving 1099-MISC. As an influencer, your job may involve a large range of expenses.
Always Look to Deduct Business Expenses
If the income you receive from your social media activities qualifies as business income, you can deduct qualified business expenses to lower the amount of taxes you owe. Social media is a hobby for most of us, but if you are an influencer and are actively trying to turn a profit, you can deduct expenses against your income on Schedule C. If social media is a hobby, Section 183 of the Internal Revenue Code allows you to deduct only up to the amount of your associated income.
Just like other small-business owners and people who work for themselves, influencers may be eligible for a handful of tax breaks. Influencer compensation such as merchandise swaps, payments from contractors, and benefits are subject to the tax code.
If the influencer is a worker and is receiving the gift because of that employment — a sports star, say, receiving a car from the local car dealer — then that gift would be taxable under the Income Tax (Revenues and Pensions) Act 2003. If you give influencers or YouTubers a car or a holiday in exchange for specific delivery items, as described above, HMRC requires them to be declared as earned income.
There is an example given under HMRC’s guide on business income (BIM40051) that says that if you cannot convert it to cash, then there is no tax due on that product/service. If you are receiving any product which you are advertising on the internet, such as free holidays, then you do not have to pay any tax on this.
