Do Influencers Pay Taxes on Income and Gifts?

Social media influencers, like any other income-earning individuals, are subject to tax obligations. The Internal Revenue Service (IRS) considers influencer activities a business. This encompasses various forms of compensation received through social media platforms, brand collaborations, and related activities. All earnings are generally viewed as self-employment income, requiring adherence to standard tax regulations.

Defining Taxable Influencer Income

Influencers receive income in many forms. Monetary payments from sponsorships, brand deals, and affiliate marketing commissions are taxable. Also includes ad revenue, direct payments for content creation, and even tips or donations received from followers.

Non-cash compensation, such as gifted products, services, or experiences like free travel or merchandise, is also considered taxable income. The fair market value of these items must be included in an influencer’s gross income. For instance, if an influencer receives a product in exchange for a review or promotional post, its value is taxable. It is important to differentiate between personal gifts and gifts received for business purposes, as only the latter are taxable.

Bartering, where services or content are exchanged for goods or other services, similarly results in taxable income. The value of what is received in such exchanges is considered income. Maintaining meticulous records for all types of income, including dates, sources, and fair market values for non-cash items, is crucial for accurate tax reporting.

Reporting Influencer Earnings to the IRS

Most influencers operate as independent contractors or sole proprietors. This status dictates how their income and expenses are reported to the IRS. Influencers use Schedule C (Form 1040), “Profit or Loss from Business,” to report their business income and deductible expenses. This form allows for the calculation of net self-employment income.

Businesses that pay an influencer $600 or more in a calendar year issue Form 1099-NEC, “Nonemployee Compensation”. This form details the amount paid and should be used by the influencer to reconcile their reported income. Even if an influencer does not receive a 1099-NEC for payments under $600, all income, regardless of the amount or whether a form is issued, must still be reported to the IRS.

Self-employed individuals are responsible for paying self-employment tax, which covers both the employer and employee portions of Social Security and Medicare taxes. This tax is calculated on Schedule SE (Form 1040), “Self-Employment Tax”. For 2024, the self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare. The Social Security portion applies to net earnings up to a certain annual limit ($168,600 for 2024), while the Medicare portion applies to all net earnings.

Claiming Business Expenses

Influencers can reduce their taxable income by claiming business expenses. These expenses must be “ordinary and necessary” for the business. An ordinary expense is one common and accepted in the influencer industry, while a necessary expense is helpful and appropriate for the business, though not necessarily indispensable.

Common deductible expenses for influencers include:
Equipment like cameras, lighting, and microphones
Software and subscriptions for editing or social media management
Website hosting fees
Travel expenses directly related to content creation
Professional development courses
Home office deduction

Professional fees for services like accounting or legal advice are also deductible. Maintain detailed records, receipts, and logs for all claimed expenses to support deductions in case of an audit. Personal expenses, however, are not deductible, and it is important to separate personal and business finances to avoid issues.

Paying Estimated Taxes

Since taxes are not automatically withheld from an influencer’s income, self-employed individuals must pay income and self-employment taxes throughout the year. These payments are made quarterly to the IRS to cover tax liabilities. The estimated tax payment periods conclude on April 15, June 15, September 15, and January 15 of the following year. If a due date falls on a weekend or holiday, the deadline shifts to the next business day.

Form 1040-ES, “Estimated Tax for Individuals,” is used to calculate and pay these estimated taxes. This form includes worksheets to help estimate current year income and tax liability. Making sufficient and timely estimated tax payments helps avoid underpayment penalties. The IRS may impose penalties if less than 90% of the current year’s tax liability, or 100% of the prior year’s tax liability, is not paid throughout the year.

Estimated tax payments can be made through various methods, including online via IRS Direct Pay or the Electronic Federal Tax Payment System (EFTPS), by phone, or by mail with Form 1040-ES payment vouchers. It is possible to pay estimated taxes more frequently than quarterly, as long as the total required amount is paid by the end of each quarter.