Tax Implications For Us Influencers Receiving Free Products And Promotional Items

The Internal Revenue Service (IRS) has not issued comprehensive guidance on how the estimated 27 million Americans who earn income as influencers should report their earnings and expenses. This lack of clear direction creates significant uncertainty for content creators, their accountants, and the brands that partner with them. A primary area of confusion involves the tax treatment of free products, services, and other promotional items that influencers receive as part of their work. While some tax professionals argue that these freebies should be treated as taxable income, others consider them non-taxable gifts. This ambiguity leaves many influencers unaware of their correct tax filing obligations.

Research published in the Journal of Accountancy in the fall of 2024 examined tax laws, reviewed practices of accounting firms specializing in influencer clients, and analyzed existing IRS guidance. The findings highlight a critical distinction that directly impacts tax liability: the IRS rarely classifies influencer freebies as gifts. Instead, the vast majority of these product exchanges are viewed as compensation for services rendered, such as reviews, social media posts, or shout-outs. This compensation must be included in the influencer’s gross income, carrying the same tax liability as a direct monetary payment.

The determination of whether a received item is taxable hinges on the intent of the payer. The IRS defines a true gift using the standard of "detached and disinterested generosity," meaning the transferor must have no expectation of a benefit or return service from the recipient. A product sent by a brand with the expectation of promotion fundamentally fails this test. Consequently, items received in exchange for promotional activities are considered taxable income, regardless of whether the influencer receives a Form 1099 from the brand. For example, if a brand sends a $300 camera for an Instagram review, the influencer must report $300 as income.

The fair market value of the free product or gift is treated as income and must be reported on the tax return. Fair market value is defined as what the product would cost at retail. This applies to a wide range of items, including physical goods like running shoes and headphones, as well as services such as luxury hotel stays. Influencers must track everything they receive for free and all work-related expenses paid during the year. Creating a simple record-keeping system to track all goods and services received simplifies the tax filing process, and there are applications available to assist with this.

The tax code presents additional challenges regarding expenses, particularly when purchases serve both personal and business purposes. Business expenses can be deducted on a tax return, but personal expenses cannot. The IRS code is especially strict concerning apparel unless it is used exclusively for business purposes. This creates uncertainty for influencers who purchase items, such as a cashmere scarf, that they promote on social media but also use for personal errands. The question of whether such an item is partially deductible, partially deductible, or not deductible at all remains unclear due to insufficient IRS guidance.

Influencers are also responsible for paying self-employment taxes, which include Social Security and Medicare taxes. The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare. This tax is paid on net earnings from self-employment, calculated as total income minus any deductible business expenses. Earnings below $600 must still be reported on tax returns. Additionally, influencers receiving payments through third-party platforms like PayPal might receive a Form 1099-K if they meet certain thresholds.

For influencers earning income from U.S. companies but residing outside the United States, tax obligations may differ. Form W-8 series is provided by the IRS to help foreign individuals establish their status as non-U.S. residents for tax purposes. These forms ensure appropriate tax withholding rates are applied based on tax treaties between the U.S. and the influencer's country of residence.

While the IRS issued guidance in 2006 advising entertainers and celebrities that items received in "swag bags" at high-profile events constitute taxable income based on their fair value, this advice offers only a starting point. The lack of updated, comprehensive guidance leaves a growing area of uncertainty affecting millions of people and countless companies. The influencer industry has an estimated market value of more than US$23 billion in 2025, with some predictions reaching $71 billion by 2032 as brands increase spending on influencer partnerships. Ideally, all influencers would sign contracts with business partners outlining compensation terms. In reality, companies often send items or provide free services without prior agreement.

When influencers receive unsolicited items, these generally do not qualify as gifts because a true gift requires nothing expected in return. In contrast, influencers receiving freebies are often expected to promote or acknowledge those products or services. If influencers receive items they don't use, returning them is recommended to minimize potential tax liability. Otherwise, unsolicited items could constitute income that must be reported unless they are considered de minimis—very low-value fringe benefits. In influencer marketing, the de minimis guideline may allow influencers to exclude low-cost products or services from their income if the value is too small to track, though specific thresholds are not defined in the provided documentation.

Specific audits of social media influencers for nondeductible lifestyle expenses are not publicly documented due to confidentiality. However, common areas where influencers may face scrutiny from tax authorities include nondeductible personal expenses and improper reporting of free products. Neither the IRS nor Congress has indicated whether any guidelines, regulations, or laws clarifying the rules governing influencer taxation are in the works. It is also unclear when IRS audits of influencers or relevant tax court cases are underway.

For influencers, maintaining meticulous records is essential. This includes documenting all free products received, their fair market value, and any associated promotional activities. Understanding the distinction between taxable compensation and non-taxable gifts is critical for compliance. While the current guidance is based on commonly accepted tax rules for business deductions and income recognition, the absence of specific regulations for the influencer industry continues to create challenges. As the industry grows, the need for clear, updated guidance from the IRS becomes increasingly urgent to ensure that millions of content creators can meet their tax obligations accurately and confidently.

Conclusion

The tax obligations for influencers receiving free products and promotional items are governed by the principle that these items are generally considered taxable compensation rather than non-taxable gifts. The IRS requires the fair market value of such items to be reported as income, and influencers are responsible for tracking these items and associated expenses. Self-employment taxes apply to net earnings, and influencers must adhere to record-keeping requirements to accurately file their tax returns. The lack of comprehensive, updated IRS guidance specific to the influencer industry creates ongoing uncertainty, making it essential for content creators to stay informed about current tax rules and consult with tax professionals when necessary.

Sources

1. The Conversation: Influencers have trouble figuring out their tax obligations and with good reason
2. Kajabi: Do Influencers Pay Taxes
3. Legal Clarity: Do Influencers Pay Tax on Gifts and Free Products?