Withholding Tax on payment from the UK

[Windwaker90]

I'm a US-based freelance musician who has been working for a UK-based publisher. They are telling me they have to deduct a flat 20% withholding tax from my royalty earnings unless I obtain a "Certificate of Residence" from the IRS—I think they meant something like the form 6166. With this form, I would avoid the UK tax and just be taxed by the US. However, it looks like I would have to pay $80 or something to the IRS each year to obtain this form.

If I don't obtain the Certificate of Residence/form 6166 (due to the costs), is there a way for me to prevent US taxes (to prevent double-taxation) on 2021 tax return as well as get some money back on my returns since 20% UK withholding tax is significantly greater than the income tax in the US?

Thank you!

[Vanessa A]

If you are a US Citizen, then all of your income from around the world is subject to US taxes.  However, you can take a foreign tax credit or foreign earned income exclusion to offset taxes paid to other countries. 

You can take one or the other, not both.  The tax credit is basically a credit you claim on your return to make up for taxes you paid to other countries.  The Foreign Earned Income Exclusion allows you to remove certain income from your taxable income. 

[Windwaker90]

Thank you! In order to obtain foreign tax credit, do I have to file any particular paperwork (such as 1099 or equivalent) issued by the the UK company? 

[Vanessa A]

No, but the better your documentation that you have had to pay the taxes, the better you will be in case of an audit.  The 1099 equivalent would only be necessary if you were claiming that you are paying independent contractors. 

Since you are freelance, your records are your documents.