Why Is Now DistroKid Withholding Up To 30% of Artists' Earnings (And No, They're Not Trying to Steal From You)
Maybe you've already noticed the huge shitstorm that has hit DistroKid recently - basically, a massive amount of artists got pissed at DistroKid for withholding up to 30% of their earnings, something that none of them experienced on the platform before, with many of them deciding to leave the service for a different distributor.
If you use DIstroKid yourself (what I kinda suppose you do if you're reading this article), you may also probably noticed that the "Bank" section of the website got inaccessible to you at some point, requiring you to fill a tax-related legal form in order to regain that access. I got surprised by it, too, feeling quite frustrated and lost when I had to fill it in for the first time.
A lot of people are now accusing DistroKid of trying to actually steal their money, and there's a great chance you've seen the "famous" outraged video by Dan Vasc where he openly calls DistroKid thieves. If you are not familiar with the name (or the face), there's still a great chance that you've heard the metal cover of The Witcher's notoriously known song "Toss a Coin To Your Witcher" - which he is author of.
Personal opinion: Although I feel Dan's pain, I still think that he recorded it from the standpoint of a quite uninformed person, and frankly, the follow-up video kinda proves my point, as he never got to explain the underlying legal issues DistroKid is bound to follow, and instead spent the whole video bitching about DistroKid lying to their users that they will keep 100% of their earnings. To me, this feels like Dan maybe realized his mistake after recording the first video, but instead of explaining the whole thing, he picked on that one thing he was actually right in, and it was the DistroKid inability to actually communicate this whole thing to their users. But after all - can I blame him after that horrible treatment from the customer care department? I guess not. Shame on you, DistroKid.
Anyway, let's finally ask that burning question:
Is DistroKid really trying to steal from you?
The short and definitive answer is NO, Distrokid is NOT trying to steal your hard-earned money. What Dan probably didn't know before shooting his angry video was that this isn't just a problem of DistroKid. Recently, I've also noticed a few sample pack creators having the same issue with their Splice royalties and I expect more cases to arise during the upcoming months. In fact, those companies are just implementing this automatic tax-withholding system to make sure that you pay your US taxes according to the law, as they are probably facing repercussions from the IRS (U.S. government agency responsible for the collection of taxes and enforcement of tax laws) for not doing so till now. (If that still confuses you, hold on - I will talk about this a bit later in this post).
Anyway - believe me, but those companies are anything but happy about this, too. It forces them to spend a great amount of time and resources to implement the technical necessities plus they are facing the immediate backlash in the form of the hate coming from all the uninformed clients who now feel like they're being robbed by those companies, while those companies are doing nothing else than just obeying the law so they can continue on operating. What law, you ask? Well - let me explain, but first, watch this video answer from subversiveasset, recorded as an "answer" to Dan.
So what is it all about?
No matter how you like to call your art, legally it becomes business in the first second you start making some money with it. And as every business out there, even you as a musician have to pay taxes from their earnings. When your earnings are all sourced in your resident country, that process is pretty straightforward (well...), but when the business gets international (which it gets for most of us), things get a bit more complicated, as something called "double taxation" comes into play. In DistroKid's case (as DistroKid is the subject paying you money, eg. the source of income, and it's located in the United States), it's the U.S.A. vs the rest of the world - unless you're a U.S. resident, double taxation becomes your problem.
So what's double taxation about? It's simple - countries love their taxes, so the "source-income" country usually wants their share of the money that's getting out of their economy, whereas the country where you reside wants to "fairly" tax you for your incomes like it taxes any other resident. It makes sense when you run a physical business in the source-income country (so you're using their infrastructure etc), but not so much when you're an artist making money digitally (and most of the infrastructure needed for that is owned by private companies who paid taxes when building it).
Now, these foreign-trade tax laws have been here for quite some time, so it's not exactly clear why these companies are implementing this just now. So far I have been unable to find 100%-confirmed information about this, but rumors are that the companies just didn't give a fuck till now and now they're finally facing the anger of the IRS and basically begging for mercy while implementing the technical necessities as fast as they can.
How to get the most of it?
Luckily, most of the countries have mutual treaties guaranteeing certain conditions in order to protect their citizens (and their money, of course) and a fair share of them actually sets the withholding tax value to 0%, meaning you get all your money. Here you can see the list of withholding taxes for each country.
So - if you are lucky to be the resident one of those with 0% withholding tax, all it takes is to CORRECTLY fill in the DistroKid's tax form (using the W-8BEN form) and you should be safe. Of course, if you fuck up, you'll lose money, and possibly a lot of it, so it's a great motivation to make 100% sure you get everything right.
So this is the brief explanation and also a little light of hope for all of those who are now fearing for their incomes. To be honest, this is still a kind of basic stuff that we should actually be aware of, as besides being artists, we are now all international businessmen, too, but on the other hand - who the hell has time for all this crazy bureaucracy?
Is there a way how to get your withheld money back?
Unfortunately, I can't help you much with this one. There should be a way of doing so, but it probably differs from country to country, so I'm forced to use the DK's own infamous (but still 100% correct) answer here and advise you to contact your accountant about it. And I am not joking here at all - who else should be able to help you better with this issue?
Still, shame on you, DistroKid
Even though it's not exactly DistroKid fault that some of your money may now be withheld when you try to withdraw them, they still fucked up quite a lot. They had to do just one thing right - to communicate the whole thing properly to their clients - and they fucked up that a big-time, as they did NOTHING at all. They just implemented the legal forms but never really got a single word out about it. And what's even worse, their customer care was reportedly less than helpful, making the user feel like talking to a computer rather than to a human being. I even made the effort to contact them so I could get some more-or-less official explanation for the sakes of this blog post, but never actually got an answer.
To me, there is also another level of disappointment to this, as DistroKid's brand has always felt like "that friendly distro which actually talks in human language in their texts and generally just FEELS human", so them being so shady about this now kinda bamboozled me as something I wouldn't normally expect from DistroKid (as despite some user reports, even my experience with their customer care was very positive so far).
The ultimate takeaway
For us artists, this just sucks - a lot. Some of us (like me) are lucky enough to live in the country with a good tax treaty with the USA, but some of us will now have to deal with just another bullshit paperwork so they can see all their earnings. Unfortunately, it's what it is and we have to do what we always have to do... to adapt. Anyway - getting to know something about finances and business laws certainly shouldn't hurt us.
For DistroKid, this sucks quite a lot, too (but hey, they did this to themselves). The damage has been done and the bad press is probably stick on the internet for a while, luring some potential customers away from the service. For Distrokid, this should be the ultimate lesson on the importance of communication and transparency, as being honest and open about their operations is the best thing a company can do to maintain a healthy relationship with their customers. Once trust is lost, it is very hard to earn back.
- Reddit: DistroKid Taking 30% of Payouts
- Reddit: Please, look up how tax treaties work before you throw a fit about missing revenue, for your own mind's sake.
- Distrokid FAQ: Information about tax withholding for non-U.S. residents
- Tunecore Taxes FAQ
- IRS: Withholding on Specific Income
- Withholding Rates (Official Document)
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Welcome! My name is Pao and I'm the person behind this whole website. Besides making music myself whenever I can, I also write this blog and curate Spotify playlists. Feel free to explore it here a bit - I believe you will find some interesting stuff around ^^