Every business, large or small, is obligated to pay taxes to its respective government. This is true for Twitch, the popular live streaming platform, as well. But how does Twitch fulfill its tax obligations? And what does that mean for its users?
Twitch, which primarily operates in the United States, pays taxes like any other U.S.-based business. The platform is subject to federal, state, and local taxes. These taxes include income tax, sales tax, payroll taxes, and more. So, every month, Twitch calculates and remits these taxes to the respective tax authorities.
Twitch's Federal Tax Obligations
As a U.S.-based company, Twitch is subject to federal income tax. This tax is calculated based on its net income for the year. In 2020, Twitch's parent company, Amazon, reported a federal income tax provision of $1.8 billion.
Twitch also has to pay federal payroll taxes. These include Social Security and Medicare taxes, which are deducted from employees' wages. Twitch also pays its share of these taxes.
Social Security and Medicare Taxes
The Social Security tax is 6.2% of an employee's earnings, up to a certain limit. Twitch, like all employers, also pays 6.2% on each employee's earnings. The Medicare tax is 1.45% of all earnings, with no limit. Again, Twitch pays half of this tax.
FICA Tax Limits and Exemptions
In 2021, the Social Security tax limit was $142,800. This means Twitch didn't have to pay Social Security taxes on earnings above this amount. However, there's no limit for Medicare taxes. So, Twitch paid Medicare taxes on all its employees' earnings.
Twitch's State and Local Taxes
Twitch also pays state and local taxes, which vary widely depending on the location. In Washington State, where Twitch is headquartered, the state income tax rate is 0%. However, Twitch still pays state taxes on sales and employment, among others.
Local taxes can include sales tax, property tax, and more. For instance, Twitch pays Seattle's 10.3% sales tax rate on its taxable sales within the city.
Sales Taxes on Twitch's Revenue
Twitch levies a 5% fee on streamers' subscription revenues, which it is obligated to collect sales tax on, if applicable. The sales tax rate varies by the viewer's location. Twitch then remits these taxes to the relevant state and local tax agencies.
Property Taxes on Twitch's Properties
Twitch pays property taxes on its real estate properties, such as offices and data centers. These taxes fund public services like schools, parks, and libraries.
Twitch's commitment to its tax obligations might seem mundane, but it's crucial. It ensures Twitch stays in compliance with the law, maintains its social license to operate, and contributes to the broader community it operates in. As a responsible business, Twitch understands the importance of paying its fair share of taxes.
