Are Twitch Donations or Tips Taxable for Streamers?
Overview
As a streamer, there are a handful of ways to earn income. As I’m sure you know well. Often it can be confusing to understand what needs to be reported on your yearly tax return as income. The short answer is — all of it. However, I know there are plenty of conversations circulating about whether some income, such as donations or “tips”, really need to be reported. To be honest, it’s a fair question considering there are few educational pieces out there. Unless you’re working closely with a CPA, it can be hard to understand what’s the true answer. Hopefully, this article will tackle some of the lingering questions & provide context to help you better understand why donations are 100% taxable income for streamers.
Are Twitch Donations Taxable?
As you may hear from your fellow streamers & gaming community, there is a belief that donations/tips don’t need to be reported as taxable income on your tax return. The common viewpoint/argument is because they are called “donations”, so people consider them to be “charitable”. Unfortunately, this isn’t the case at all. Nor would it hold up during an audit by the IRS — if that were to happen to you.
To set the stage for examining this in the streaming world, let’s talk about how we would traditionally think of donations. Let’s also assume it’s a qualified charitable transaction where all requirements for it to be considered charitable are met. The donor, the person donating money to the organization, can “write-off” that donation on their tax return — up to a certain threshold. For us in the streaming world, think of it as the viewers in your channel.
The organization receiving the donation, isn’t taxed on this income because they are either a nonprofit or qualified organization. For us in the streaming world, we tend to think that would be the streamer. However, this is where the misconception begins.
IRS Qualified Organizations
To not be taxed on income from “donations”, you must be a select organization. Those select organizations must meet specific requirements to be considered a “qualified organization” in the eyes of this IRS.
If you don’t fall into the category of a nonprofit/charity or qualified organization, you get taxed on almost any income you might consider to be “donations” and/or “tips”.
Here’s the official guidelines straight from the IRS website regarding who is considered a qualified organization. However, because that can a boring and confusing read, I’ll break it down.
A streamer is streaming to receive compensation for the entertainment they are putting on — playing video games, being funny etc. They are not streaming for charitable purposes. Therefore, a “donation” doesn’t act in the same way we picture a donation in the traditional world. Though the terminology sounds the same. Streamers take that “donation” from their viewers & personally financially benefit.
When a qualified nonprofit organization receives a donation, that money is not used for personal financial gains. This is why they are a charity — they are using funds received to help someone or something, without their interest in mind.
Which is why they don’t get taxed on that income.
To further support the argument & make the line very clear as to who counts as an organization who doesn’t have pay taxes from donations, let’s look at this description from Investopedia —
“A nonprofit organization is an organization that engages in activities for both public and private interest without pursuing the goal of commercial or monetary profit.”
In simpler terms, what I said above. They don’t take the donation and personally financially benefit from it.
Further the article reads.
“To be exempt from federal taxes, nonprofit organizations have to meet certain rules.”
The important words here are “to be exempt from federal taxes”. Which is what we’re all wondering and trying to better understand, right? Do streamers have to pay taxes on “donations” from viewers? Let’s keep going —
Two of those rules are the following (still quoting from Investopedia) — “Be organized and operated exclusively for charitable, scientific, religious, or public safety purposes.” AND “Collect income and turn over the entire amount (minus expenses) to organizations or individuals who are lawfully recognized as legitimate charities.”
Of which a streamer does neither.
Final Thoughts
Now, I know that was quite a bit of information and can possibly be difficult to swallow. Hopefully, I broke it down enough & pointed out the important parts that provide context to your understanding & education.
To bring it full circle it’s as simple as this — A streamer is streaming & working to receive “donations” and/or “tips” from their audience (viewers, subs etc.). You’re essentially an entertainer. You’re going to take that money and use it for your own personal benefit. A true charitable & qualified nonprofit is not going to take that money and use it for their own personal benefit.
That’s why they don’t have to pay taxes on donations received. Plain and simple.
If that money is going to be used for personal gain it cannot be considered a real donation and it does not qualify as nontaxable income.
Unfortunately, 99% of the time streamers use donations for personal gain. It’s considered taxable income that every streamer must report on their tax return.
Disclaimer: None of the information above is intended as financial or tax advice in any way, shape, or form. Everything is for educational purposes only. Every individual has a different situation & should appropriately seek a professional for guidance.
WRITTEN BY
Juan Rodriguez, CPA Gaming, esports & content creator CPA. Founder of Lodgz Financial.