How Do Influencers Pay Taxes?

Influencers are responsible for paying and filing their taxes -- just like ordinary people.

Years ago, the term "influencer" wasn't a job title. But it has now become a legitimate way for people to make an income. Many of the most popular influencers make a lot of money. Have you ever wondered how influencers pay taxes? Yes, even influencers have to pay Uncle Sam.

Unlike salaried workers who have their taxes deducted from their paychecks, self-employed workers and independent contractors are responsible for setting aside and paying their taxes. Their taxes aren't taken out of their paychecks and they don't receive a W-2 tax form.

Some examples of people who fall into this category are food delivery app drivers, freelance writers and editors, and virtual assistants.

But did you know influencers are considered independent contractors? That means they're responsible for paying their own taxes. If they don't, the IRS will eventually find out.

Influencers have tax obligations

You may be wondering how influencers get paid. Many influencers receive payment for each project they do. They may receive payment per social media post, video, or blog post. But income isn't the only way they get paid for their work.

Influencers may also receive free products or services in exchange for promoting a brand to their followers. When this happens, the influencer is still responsible for paying taxes on the value of the free product or service. In most cases, gifts that are received as compensation are considered income in the eyes of the government.

Since most influencers work on multiple projects yearly and have various income streams, keeping their personal finances organized is in their best interest. Otherwise, it can be challenging to keep track of their total yearly income for tax purposes.

The most popular influencers likely have the means to afford a team of professionals to guide them. Their team may include personal assistants, attorneys, and financial planners.

Influencers must report their income and make tax payments

It's common for independent contractors to receive 1099-NEC forms when they've received non-employee compensation of $600 or more from the brands they work with or platforms they post their content on, like YouTube and Instagram.

Additionally, independent contractors may be sent 1099-K forms if they receive $600 or more in payments through third-party payment apps like PayPal and Cash App.

While independent contractors may not receive official tax documents for payments totaling less than $600, all income should be reported and is considered taxable.

Influencers must calculate their yearly income and then calculate their tax responsibility. They must pay self-employment, federal, and applicable state and local taxes.

Like other independent contractors, influencers should make quarterly estimated tax payments throughout the year to avoid underpayment.

Setting yourself up for success as an independent contractor

Are you hoping to become the next big influencer? Or perhaps you want to leave your traditional nine-to-five job and begin a more flexible freelance career. You'll want to ensure you're prepared to handle your new tax situation as an independent contractor.

Here are some tips that may help you:

• Track your earnings. Keep records of all income you bring in. You'll need to report your income when you file your tax return. Having good records will make it easier for you to calculate how much tax you owe and will make tax season less stressful.
• Make quarterly estimated tax payments. Freelancers and self-employed workers should make quarterly estimated tax payments. If you don't do this and underpay, you will have to pay penalties when you file your federal tax return.
• Track your business expenses. If you pay for business expenses throughout the year, keep an accurate record of each expense. Qualifying business expenses are tax deductible, which could be a win for your wallet.
• Hire a professional. If you're new to freelancing, getting a tax professional involved is worth the investment. An accountant will make sure you're handling all of your tax affairs correctly and they can answer any questions you have.

Do you feel confident handling your taxes without a professional? You can use tax software to quickly file your taxes electronically. Review our best self-employed tax software list to find the right solution for your needs.