Baker Institute report: How do influencers get taxed?

Influencer set up

HOUSTON – (April 3, 2023) – Social media influencers can earn hundreds of thousands or even millions of dollars each year. But how are those earnings taxed? A new brief explains what rules apply to influencers and how authorities can improve compliance.

Successful influencers often branch out from social media into many other areas, including establishing their own clothing or product brands, participating in reality shows or opening entertainment arenas. Existing tax rules that apply to self-employed individuals, hobby activities, celebrity endorsements and in-kind payments can provide a guide for handling their earnings, argues Joyce Beebe, fellow in public finance at Rice University’s Baker Institute for Public Policy.

Influencer set up

“As the (digital) industry continues to evolve, tax authorities will adapt to industry trends,” she wrote. “In fact, recent developments in the sharing economy space — such as new compliance software, education tools and guidance — have had positive spillover effects on the influencer economy.”

The best starting point is to clarify the federal tax rules influencers should follow, Beebe argues. A dedicated IRS webpage similar to the one established to address the gig economy would help these entrepreneurs. Tax authorities should also inform social media platforms, merchants and agencies that interact with influencers about Form 1099 responsibilities for both in-kind and cash payments.

While considerations specifically for influencers may be necessary, tax authorities are already aware of the common abuses and loopholes in similar areas, Beebe said.