Contemporary Music Instruction and Mentoring
How to Handle Payments and Tips for Gigs
Here are some general concepts to keep in mind when dividing up payments received when performing music:
PA SYSTEM
Whoever supplies the PA system definitely deserves an extra cut for that. Depreciation and wear & tear are very real costs that should be borne by the entire band, not by the person who spent the money to buy the PA. In my current bands, it is me who does that. In bands I’ve been in in the past, it has been someone else. In one band, the entire band bought the PA… I do NOT recommend that. There are too many complications when someone quits the band or the band breaks up or PA equipment is purchased or sold.
In my classic rock band, The Fender Benders, many of our gigs are performed at venues where the venue has hired a professional sound company to provide the PA system and someone to run it. Obviously, in such a case, there is no issue when dividing up the performers' fee. However, when we use my big PA, I charge $25 per gig. Which is super cheap. I have spent way more than that over the years replacing equipment that has worn out, but that’s okay. At least there is some remuneration. We also pay someone to be our sound tech to run the board during the set. (This is usually one of my students.)
In my acoustic group, Relic Acoustic Band, we usually perform with my small PA system. I charge the band $10 per gig, but many of our gigs are charity events and I don’t charge for that. Also I’ve decided if the venue doesn’t pay us and we just get tips then I don’t charge for the use of the PA at those gigs either. I just “eat” the wear and tear on those gigs.
The important thing is that everyone knows in advance how this will be handled and has a say in that decision.
BOOKING FEES
Whoever “books” the gigs also deserves an extra cut for that. For every paying gig I book, I charge my bands 5%, which when compared to the 20% that booking agents charge, is a bargain. The reality is I don't even make ten cents per hour for writing all those emails and making all those calls, but that's okay. At least I'm compensated something for my time and effort. Again, my habit is to not charge when it’s tips only or when it’s a free gig.
SPLITTING WHAT'S LEFT
In most bands, after paying the sound tech and booking fees, everything else gets split equally. Perhaps that’s really not “fair,” because it can be argued that band members don’t contribute equally. Some have really expensive equipment they have to buy, haul, and wear out, while the lead singer just shows up with a microphone. Some practice harder than others or have more talent. Some are more important to the audience’s experience than others. Some have written some of the songs the band plays. But unless it’s a solo act and the band is a backup band where each member is hired individually by the artist for a contracted price, in all other cases the tradition in bands is to split the total equally.
Exceptions may include if a band member lives significantly farther away, you may want to help them pay for the difference in gasoline cost for them compared to the transportation cost incurred by the other band members. Or other factors that make sense to all the band members. But the general rule is split it equally.
TAXES
WARNING: read this section carefully!!!
Tax law does not follow the principle of "innocent until proven guilty." With the IRS, it's "guilty until proven innocent." In other words, they don't have to prove you did something wrong. All they have to do is say you did something wrong, and then they can and will fine you and penalize you and make your life miserable, unless you can prove you didn't do anything wrong. The burden of proof isn't on them, it is on you. Of course, that is completely unconstitutional, but be that as it may, that's the reality we live in. So it is wise to keep accurate records of your music performance income, and to pay income tax on it.
Before you ever play your first paying gig with a band, you need to make some tax decisions as a band. If the entity hiring you is a county, city, university, church, corporation, or similar organization, they will pay you with a check, not cash. By law, if they pay you $600 or more during a year (for all gigs, not just one gig), they must get the Social Security number of the person they wrote the check to. To get this information, they will require you to fill out and sign a tax form called a W-4 before they will write the check. Then, if your band is paid more than $600 during the year, in January they are required to send to whoever signed the W-4 another tax form called a 1099-NEC. That form will show you how much they paid you during the year. They will also send a copy of that form to the IRS. That way, the IRS can check to make sure that the person who filled out the W-4 paid tax on the full amount (not just his or her share.) If the amount on that person's tax return doesn't match the amount on the 1099-NEC, he or she can expect a nasty letter from the IRS, demanding payment of the tax, along with fines and interest.
Of course, one member of the band shouldn't have to pay all the income tax on that income. All the members of the band got paid, and they should all pay their share of the tax. There are two ways to handle this. First, you can set your band up as a business, with its own tax ID number and its own checking account, and that way the checks can be made out to the band instead of one person, and it is deposited into the band checking account. Then the band members get be paid by writing checks out of the band checking account, and everyone will have to pay tax only on their share. But that is generally a HORRIBLE way to do it, because then the band will also have to file a tax return, which will be VERY complicated, time consuming, and expensive to prepare. There will also be more hassle and costs for corporate licenses and business licenses and bank fees. There is a much simpler way that does not require you to form a corporation, or get a business license, or get a business tax ID number from the IRS, or get a business bank account, or file a corporate tax return. It is to just have one person be the band treasurer. The band treasurer is the one who the checks are always made out to, then that person deposits the checks into their own personal checking account, then writes checks or Venmo payments to the other band members. Then on the treasurer's annual income tax return, which is called Form 1040, they will include a Schedule C which is for a small business. On the treasurer's Schedule C, the full amount paid to the band will be income, but the payments the treasurer made to the other band members will be an expense. That way, the treasurer will only pay tax on the difference, which is equal to their own share of the total. (By the way, that person can also deduct as a business expense on Schedule C the full cost of all their other costs of music performing, including the cost of purchasing and repairing their musical instruments and PA equipment, costs of their cell phone because it is used to book gigs, cost of miles driven to band practices and gigs, and most other costs of being in the band.) Then in early January of each year, the treasurer fills out a 1099-NEC form for each band member who was paid more than $600 during the year, and mails a copy to the band member and to the IRS. And then those band members have to include that amount as income on their 1040 tax returns.
Sometimes the owners of small venues will pay you in cash, in order to avoid the hassle of keeping track of which bands received more than $600 in a year and filing 1099's. Also, cash tips are sometimes received by solo performers and groups. Most bands just split up cash received at the gig, and most musicians don't worry about paying tax on tips and cash payments. This practice is not in compliance with tax law, which says you are supposed to include any cash payments you receive as income on your tax return. Obviously, I would never advise you to break the law, but I will say this much: unless performing music is a significant percentage of your income, it is doubtful that the IRS will ever know about the cash you receive unless you tell them. However, if music performing is a primary source of income for you, and you ever get audited, the IRS might infer that you're receiving tips, and they'll make up a number out of thin air and make you pay tax and penalties on it. Also keep in mind that if payments or tips are Venmo'd to you, the IRS can get those records.