Why is Patreon income taxed by the USA?

[nomadscientist]

Unless trinkets are offered there is no consideration. It is a clearly a gift, not wage income and not payment for a good or service.

[2Birds1Stone]

"Why is Patreon income taxed by the USA?"

Just like bank bonus income, or anything that ends up on a 1099-MISC/1099-INT/1099-DIV etc.....

[nomadscientist]

Bank bonus income is an inducement to sign a contract with consideration.

[jacob]

A little while ago, the IRS decided to tax "goods and services" delivered by Patreon. Some payments are clearly just a gift but in other cases, you get stuff like stickers, postcards, or early/special access. Each patreon sets the percentage between "free and value" and are taxed accordingly. If there are no trinkets or anything else that delineates a patron from the public, there should be no tax on that particular patreon.

I've noticed that a lot of US internet companies have started to collect sales tax in the past couple of years.

[Tyler9000]

Generally speaking, money one makes from Patreon has always been considered taxable income and creators are responsible for reporting it on their tax returns. There's hustle involved, so the IRS isn't likely to consider it a gift. You can probably think of it more like tips or hobby income.

Where it gets complicated is sales tax. For a long time Patreon just ignored the issue because online sales were mostly tax-free. But once states started counting digital goods and services as taxable products the writing was on the wall for most Patreon accounts. Many reward tiers are specifically designed to sell access to increasingly valuable products -- exclusive content, streaming videos, digital downloads, etc. It's basically a subscription sales platform in a social wrapper, so it would make sense that sales taxes would also apply when patrons expect to receive something for their money.

I've personally avoided Patreon to date for this very reason -- the sales tax issue is a big gray area for the rewards I would offer, and calculating/collecting/remitting unique tax rates to every individual state is way more complicated than it's worth. But I see that they just recently took it upon themselves to do all the legwork and will now handle all sales taxes as the party of record in every transaction, which is awesome. I'll have to take a second look at them as a platform.