I just wanted to include or prompt an update on this 1983 Straight Dope Classic, recently featured in Cecil’s e-mail blast.
In the article, Cecil states:
This may have changed since 1983 (who am I to question the hard work of Cecil and the IRS 27 years ago). My wife is a writer residing in Canada but getting paid by US publishers. She does not pay tax to the IRS. At least, she hasn’t since she obtained her Income Tax Information Number (ITIN) from the IRS. This magical number allows her to receive her royalties from the US with no tax deducted, though she must still pay income tax in Canada, thus ensuring that her tax dollars go to support poutine festivals rather than Senators’ mistresses.
Apparently the ITIN was originally created for Americans working abroad who had to pay tax locally to prevent the IRS from double-dipping, but it was expanded to allow foreigners to keep the IRS’ dirty mitts off of their hard-earned cash–even if it was earned from Americans, bless their hearts (and wallets).
Welcome to the Straight Dope Message Boards, Sisiutil, glad to have you here. When you start a thread, it’s helpful to other readers to provide a link to the column you’re commenting about. Saves searching time and helps keep us all on the same page. No biggie, in this case the link is: Can artists live in Ireland tax-free? - The Straight Dope
And, of course, one of the problems with “classic” columns is that tax laws do change.
There are tax treaties among many countries (the US and Canada, for instance) to avoid double-taxation (we’re talking income tax at national level, not social security, which is a whole different situation.) The specific terms vary somewhat, but generally the country of residence is the main tax collector. Since Canadian tax is higher than US tax rates, no additional money would be required. For someone resident in the US who was being paid in Canada, they would first pay US tax (the reverse of your wife’s situation) but might have to pay additional Canadian tax.
It was a 1984 U.S.-Canada tax treaty that made royalties on creative works (books, plays, software, patents, trademarks, etc.) generally exempt from withholding tax in the non-resident country.
Most Americans still think of Canada as a high-tax jurisdiction, but headline tax rates at the federal level are currently lower in Canada than in the U.S. For example, the top marginal federal tax rate in the U.S. is 35% vs. 29% in Canada. There are very different rules about tax brackets, exemptions, deductions, and credits that make direct comparison tricky. For example, there is no mortgage interest deduction in Canada. On the other side, provincial income and sales tax rates are almost always higher than corresponding state rates, and there is a federal sales tax in Canada. The typical Canadian probably ends up paying more tax than the typical American, but not by as much as most American assume.
Here (warning, PDF) is the 1997 tax treaty between the US and Ireland. Article 12, paragraph 1 seems to agree that things have changed since Cecil wrote the column:
If I read that correctly, an Irish citizen living in Ireland who has a book published in the US would not have to pay any US taxes on the royalties. And, if Ireland still offers tax relief to such artists, would not have to pay any taxes on it in Ireland either.