Many people see how much money influencers make and think they’re not paying taxes on it. The IRS has several ways to prevent tax evasion by influencers.
Do influencers get paid under the table?
The first common misconception is that influencers get paid under the table. That can happen but not as often as you think.
Most influencers get paid through big advertising networks or directly by the companies they promote. Big companies don’t mess around with taxes, because they can be fined heavily.
Most of the money an influencer makes will under up on a 1099 that’s reported to the IRS.
When an influencer works directly for a smaller company, that company might pay them under the table. However, that company will also usually claim what it paid the influencer as a deduction on its own taxes. That means the IRS will often eventually figure out that someone should be reporting the deducted payments as income.
Do influencers have to pay taxes?
Yes, influencers have to pay taxes. They’re doing marketing work or providing other services to a company.
See the Influencer Tax Guide for more info.
What happens when an influencer doesn’t pay taxes?
When an influencer doesn’t pay taxes, they’re subject to penalties and interest. They may also be charged with the crime of tax fraud.
China’s largest influencer, Viya, was fined $210 million for tax evasion. There aren’t as many big cases in the news in the United States because of the steps the IRS takes to prevent tax evasion in the first place.
It’s simply really hard for an American influencer to avoid paying taxes because most transactions are reported.
Do influencers overstate their deductions?
There are definitely influencers who try to reduce their taxes by overstating their deductions. The IRS is also onto them.
The most common deductions influencers inflate are meals and travel expenses. Businesses of all types have overstated these expenses for years.
The IRS knows to take a close look at meals and travel expenses. If an influencer takes excessive deductions based on their income or compared to other influencers, the IRS might flag them for audit. The IRS might also do a random audit and ask for proof of their deductions.
If an influencer gets caught overstating deductions, they’ll have to pay the back taxes plus interest and penalties. They’re also more likely to get audited in the future.
What about other types of compensation?
It is harder for the IRS to track other types of compensation like free merchandise, food, travel benefits, and other non-monetary compensation. The cash value of these items is still generally taxable.
The IRS has two main ways of catching unreported non-monetary compensation. First, it might notice that an influencer’s reported income is too low to support their lifestyle. Second, when a business reports a tax deduction for what it gave an influencer, the IRS might ask for proof of the deduction, like who received it.
What should you do if the IRS is auditing your influencer taxes?
If you’re an influencer who is under audit by the IRS, what you should do varies based on the situation. If the IRS is asking for proof of deductions and you can easily provide the proof, you can usually just respond to the IRS letter on your own.
If you know you committed tax evasion or think you may not have done your taxes properly, you’ll probably want to talk to a tax attorney, CPA, or Enrolled Agent about what you should do.