How Do Music Royalty Payments Work?

Your music has been playing on Spotify, Apple Music, and more. Now it’s time to get paid.

Making sure you get paid the royalties you’re owed as a musician can feel like the world’s least fun scavenger hunt. Learning where to start can be frustrating, and you may even be tempted to write off smaller sums as not worth the effort. Unfortunately, you can’t eat guitar strings — unless you’re into metal spaghetti — or pay rent with goodwill, and those small sums can add up. Here’s how to claim music royalty payments and what you need to know once the funds have hit your bank account.

Learn more about every aspect of music finance with Music Finance: The Ultimate Guide.

How do you track music royalty payments

So, you’ve made music and people listen to it. Now it’s time to get paid for all of your hard work writing and performing. But how do music royalty payments work when it’s time to collect? It’s a little complicated, and several different types of royalties need to be accounted for, which explains why $424 million in music royalty payments has gone unclaimed. Luckily, there are royalty resources for all kinds of musical artists, regardless of how they earn money for their works.

The most common music royalty payments for artists are performance royalties, mechanical royalties, and sync royalties, though there are some others that we’ve covered in greater detail previously. Different royalty payment types will have organizations that help you track your performance and payouts, so here are some prominent examples:

Performance Royalties

Regardless of how it’s getting out there, you deserve to be paid whenever your work is played. Performance rights organizations help you collect royalties from live venues, television, radio, and many other sources, so working with one is nearly essential. ASCAP, BMI, SESAC & GMR are PROs in the US, while Canadians can turn to SOCAN. 

Mechanical royalties and distributors

Any time your recording is reproduced, whether on streaming services or on CDs or vinyl, you’re entitled to mechanical royalties. You’ll earn your royalty payments through your record label if you're a signed artist. Independent artists will want to sign up with a distributor, like DistroKid or Amuse. Think of a distributor like a wholesaler for your music that usually collects a flat fee for its services.

Sync royalties

Artists earn sync royalties when their music is in a game, movie, TV show, or anything else under a sync license. Most PROs will have a sync department that helps you claim those royalties, though there are companies that specialize in them too.

When do music royalty payments start to come in?

Now that you’re part of a PRO and have a distributor in your corner, the next question is when you’ll get your music royalty payment. Unfortunately, it can take a while before the money rolls in. According to Songtrust, which collects royalties for artists, it can take up to a year before artists see their first music royalty payment. A few factors are in play here, such as pay cycles and the amount of time that full global registration takes. 

However, once you get your first music royalty payment, you should start to see royalties paid each quarter. Notably, some PROs and distributors will have minimum amounts that you must accrue before sending a payment your way, though those can be as little as $5. International and retroactive royalties also dwell further down on the timetable. It’s a slow process, but there’s no way around the wait. 

Advance music royalty payments

While most music royalty payments will be generated through plays, streams, and licenses, you may also score an advance for music you produce, much like an author. You probably won’t bag these sorts of deals when you’re just starting, but artists with track records of success may be able to get advance payments against the money their music is expected to make later. A PRO, publisher, label, or distributor will most likely pay out the advance and then make regular royalty payments once it has recouped the advance payment. 

Music royalty taxes and fees

Death and taxes are all that are certain in this life, and you will be taxed on your music royalty payments until you bite the dust. Royalty payments are subject to standard tax rates and will change based on your tax bracket. Unless you've registered as a corporation, you’ll most likely report royalty income on Schedule C of form 1040. These taxes apply to earned royalties and won’t be withheld for you by your PRO or distributor. The responsibility falls to the artist to track and report them just like any other self-employment income.

As with any self-employed earnings, artists can claim some tax breaks. You can write off anything used for the job full time: instruments, office supplies, transportation, promotion fees, and services fees for distributors — just keep ALL your receipts for anything you intend to write off. If anything raises an eyebrow with the IRS, you’ll want tangible proof that you spent that money on supplies.

It can be frustrating to figure out where to start with royalties, but nearly everyone who makes music has been right where you are. Over time, you’ll discover what works for you and what doesn’t, helping you understand where, when, and how people listen to your music. One great option to simplify the process of getting paid what you’re owed for your music is Trqk.

Helping artists discover royalty payments that even PROs may have missed, our platform TrqkIQ™ uses data science and business intelligence to leave no royalty payment undiscovered, giving you the highest possible payout. Get in touch today if you want to maximize the earnings from your creative work.