Taxes aren’t exactly the most exciting topic for music creators and industry professionals. But if you’re making money from your music—whether through streaming, radio plays, or licensing—understanding how music royalties are taxed is crucial for staying compliant and maximizing your income.
In this guide, we’ll break down the essentials of music royalties and the IRS tax rules you need to know in 2025. Whether you’re a rising star, an established artist, or someone managing the business side of things, this step-by-step overview will help you navigate the complex world of royalties and taxes with confidence.
What Are Music Royalties?
In simple terms, royalties are payments you receive when someone uses your music. It could be from streaming platforms, radio airplay, TV shows, or even commercials. These payments help keep the money flowing to artists long after a song or album is released. But there are different types of royalties, each with its own rules.
Here’s a quick rundown of the main types:
- Print Royalties
Before the age of streaming, people would buy sheet music to play their favorite songs at home. While print royalties have become less common today, they still exist whenever music is sold in printed or digital form (e.g., chord sheets, lyrics, or scores). If your song is being sold as sheet music or songbooks, you’re likely earning print royalties. - Mechanical Royalties
These royalties come into play when your music is physically reproduced, like on CDs, vinyl, or digital downloads. They also apply to on-demand streaming services like Spotify or Apple Music. Note: Non-interactive streaming services, like Pandora or SiriusXM, don’t generate mechanical royalties but do produce performance royalties instead. - Performance Royalties
Whenever your song is played publicly—whether it’s on the radio, in a café, at a concert, or even on a playlist—performance royalties kick in. These royalties help compensate artists for the use of their music in public spaces. Performing rights organizations (PROs) like ASCAP, BMI, and SESAC make sure that these royalties are collected and paid out to artists. - Synchronization (Sync) Royalties
These royalties are earned when your music is used in film, TV shows, commercials, or video games. Sync deals are negotiated directly between you (or your publisher) and the media producers, and the rates can vary depending on the project’s scope and the popularity of the song.
How Are Royalties Collected?
The process of collecting royalties can be complex, especially with the rise of digital platforms. Music rights organizations and other companies monitor how your music is being used—whether it’s being streamed, played in public, or used in visual media—and ensure that you get paid for it.
From digital platforms to radio stations, there are multiple systems in place to track and report these uses. All this data is then used to calculate how much money you should receive. The money is then split between rights holders like songwriters, publishers, and performers, and payouts are made accordingly.
Royalties & Taxes: What You Need to Know About IRS Reporting
Here comes the tricky part—taxes. The IRS has specific rules for how royalties are taxed, and as a music professional, you need to stay on top of these to avoid penalties and ensure you’re paying the right amount.
In most cases, artists and songwriters are considered independent contractors, which means you won’t receive a W-2 like a salaried employee. Instead, you’ll receive forms like the 1099-MISC or 1099-NEC if you earn over a certain amount.
Here’s a breakdown of key forms and what they mean for you:
- Form 1099-MISC: This is used to report royalties and other miscellaneous income. If you earn more than $600 in royalties from a particular source, you’ll receive a 1099-MISC. However, royalties are special—if you earn just $10 in royalties, the company still needs to file a 1099-MISC.
- Form 1099-NEC: This form is used for nonemployee compensation. If you’re a contractor (like a session musician or producer), your earnings may be reported on a 1099-NEC, especially if you’re paid for your services rather than for the music itself.
- Form W-9: When you start working with a new company or rights holder, they’ll ask you to fill out a Form W-9 to provide your taxpayer information. This helps ensure that everything gets reported accurately when tax season rolls around.
International Tax Considerations
If you’re a foreign artist or rights holder, there are additional considerations when it comes to taxes. Depending on your country’s tax treaty with the U.S., you may be subject to different tax rates. To avoid withholding issues, be sure to fill out a Form W-8 BEN (the international version of the W-9) and be ready to report your earnings with Form 1042-S.
Deadlines You Need to Know
Filing deadlines are important, so make sure you’re aware of these key dates for 2025:
- January 31: Payee statements (such as the 1099-MISC and 1099-NEC) must be sent to the recipient.
- February 28: If filing by paper, submit forms to the IRS.
- March 31: If filing electronically, submit forms to the IRS.
Advance Royalties: How Are They Taxed?
Advance royalties are common in the music industry. They’re paid upfront to artists, typically to cover living expenses while working on music. But here’s the catch—advance royalties are not considered royalties for tax purposes. They’re typically reported as nonemployee compensation (on a 1099-NEC). Even though the payment is called an “advance,” it’s still treated like a wage for tax reporting.
Tips for Staying Compliant with Tax Laws
Navigating royalty taxes doesn’t have to be overwhelming. Here are some best practices to keep in mind:
- Use Technology to Simplify Payments: Automating royalty payments and tax reporting can save you time and reduce errors. Consider using platforms that streamline these processes, including automatic 1099 generation and international payments.
- Centralize Your Data: Keep all your royalty information organized in one place. This will help ensure accurate calculations and compliance with tax regulations.
- Stay Vigilant About Compliance: Mistakes in tax reporting can lead to costly penalties. Regularly review your contracts, payments, and filings to ensure everything is correct and on time.
Conclusion: Make Tax Season a Breeze
Understanding how royalties work and how they’re taxed is crucial for artists and industry professionals. While the process can seem complicated, breaking it down step-by-step and using the right tools can help you stay compliant and keep more of your earnings. With a little attention to detail, you can manage your royalties and taxes effectively—so you can focus on what you do best: making music.
If you’re ready to take your royalty payments to the next level, platforms like TaxDo can simplify the process by automating payments, tax filings, and compliance, so you can keep your focus on your art.
