What is IRS Withholding?
Withholding tax is a type of tax on income derived from certain types of sales. Withholding is distinct from sales tax, which is paid by the consumer on purchase of an item (like a course). Sales tax is charged to students at the point of sale. Withholding is calculated at the time of payout.
As a U.S.-based company, Udemy has to follow guidance from the U.S. Internal Revenue Service to determine if tax should be withheld from instructors’ monthly payments.
What will my withholding rate be?
Generally, IRS withholding only applies to course purchases made by students from the U.S. Your rate of withholding will depend on a number of factors, most importantly your country of tax citizenship. We can’t tell you exactly what rate of withholding will apply to your Udemy earnings until your form is submitted and approved, but when we do begin automatically withholding, you’ll be able to see the rate in your revenue report.
If we have your tax form on file, your withholding rate for these purchases will depend on the details of your submission, including whether your country has negotiated a tax treaty with the U.S.
For instructors in the U.S. who supply a valid W-9 and are not subject to backup withholding, the rate of IRS withholding is 0%.
If we don’t have your tax form on file, we will be required to apply the maximum withholding rate for all sales, regardless of country of citizenship.
What happens if I don’t submit a tax form?
Udemy is giving all instructors time to fill out the necessary forms. If we don’t have an instructors’ your tax information on file, we’ll pause your next payout and remind you again to submit.
If at that point we still don’t have your tax information, we’ll be required to default to the highest potential level of withholding on your revenue and we’ll resume sending payouts (no longer holding them), so that we can minimize your risk of noncompliance.
This might mean that we withhold more from your payouts than the Internal Revenue Service (IRS) actually requires. Depending on your circumstances, there may be avenues for instructors to recoup funds that were withheld in excess of your legal obligation.
Udemy will send reminders throughout this process, but completing the form submission now is the best way to avoid any late complications.