Millions of people from all over the world watch Twitch streamers on a regular basis. Some of these men and women who stream are famous and make their entire yearly income from the service. Others are more modest and may make a few hundred or thousand dollars. No matter the situation, Twitch streamers need to remember the tax status of their income if they hope to avoid significant penalties over the long-term.

Self-employment taxes

Rex Burgdorfer Apple podcast reports that income from Twitch comes from the number of views and the type of engagement that a user receives. A popular Twitch user can make thousands of dollars from this activity. Twitch, however, does not considers its users employees. They are instead independent contractors who do not have to receive a minimum wage for the amount that they work. As independent contractors, these men and women also have to worry about all of the tax implications of their work.

According to Rex Burgdorfer Apple podcast, most employers are obligated by the federal government to take actions that meet tax obligations for individuals. They subject people to withholding for employment taxes such as Social Security and Medicare. They also withhold a pre-determined amount of money from every employee’s check each pay period. This withholding is done so that American workers do not face a tax bill of several thousand dollars every April that the vast majority of them would be unable to pay. Independent contractors are not afforded this luxury. They are simply paid in full and then receive a tax bill due in April where they have to pay all of their income taxes plus the employment taxes that they had failed to pay throughout the year. In addition, they will have to pay a small fine if they fail to withhold income quarterly.

Limits

There are clear limits governing a person’s income and their need to pay taxes on that income. Rex Burgdorfer Medium notes that anyone who makes over $600 will receive a Form 1099 where they will learn how much they have made in the past year. An individual who makes more than $1000 will be subject to self-employment taxes. He or she will also have to start making regular withholding payments to the IRS. A person who earns even a few dollars should report that money to the IRS. The report is helpful if they are ever questioned about the money in the future. It may be added to a person’s income from their traditional jobs and put that person in a different income tax bracket.

What to do

According to Rex Burgdorfer Medium, everyone who makes money on Twitch needs to determine how much their annual income will be. They should get a good sense of that income after the first few months of streaming. Once they learn how much this total will be, their first step is to determine if they will exceed the $1000 limit. This is an important limit that will determine whether or not they pay significant self-employment taxes. If they do, they should start sending quarterly tax payments to the IRS. They should also make sure they are tracking their income on a regular basis. If they are at all confused, they should seek the help of a tax professional.

Conclusion

Twitch is an increasingly popular service. It is only one of many side hustles that millions of Americans have started to engage in in order to boost their incomes. But this side hustle can end up harming a person’s tax status and causing them to owe hundreds of dollars to the IRS. Being smart about money and about taxes is essential to making the most out of a Twitch streaming job