Parental Control in Roblox -
How to Prevent Tax Evasion in Children Without Impacting Parents
The growing popularity of Roblox has turned this online gaming platform into a cultural and economic phenomenon. Millions of users, primarily children and teenagers, actively participate in this platform, which allows players to create, share, and sell their own virtual games. In this context, it is important to understand how parents should manage the income generated by their children on Roblox and fulfill their tax obligations.
The Roblox Business Model
Before delving into tax issues, it is essential to understand how the business model works. Roblox is a platform that allows users to create and play games developed by other community members. It currently offers approximately 5 million games, primarily targeted at children. Monetization on Roblox happens through two key elements:
1. Robux: The Virtual Currency
Robux is the virtual currency of Roblox, which users can purchase with real money or earn in-game. Players can use Robux to buy virtual items, such as clothing for their avatars, accessories, and other items in Roblox's catalog.
2. Game Revenue Sharing
One of the most notable aspects of Roblox is its Game Revenue Sharing Program. Game developers can earn money
through Roblox in the following ways:
Sales of Virtual Accessories and Items:
Game creators can design and sell virtual items within their games. Roblox takes a commission for each sale, and the developer receives a portion of the generated revenue.
Developers can create game passes that players must purchase to access additional content or in-game advantages. Again, Roblox takes a commission, and the developer gets a share of the profits.
Advertising and Event Participation:
Developers can generate income by including advertising in their games or by organizing special events within the platform.
It is important to clarify that Roblox follows a freemium model, allowing free play but offering the option to enhance the experience through in-app purchases for additional content.
Taxes and Income Generated on Roblox
When minors generate income on Roblox, whether by selling virtual items or receiving payments for game passes, these earnings can have tax implications. Here are some key considerations:
Child's Age and Regularity of Income
The child's age is an important factor to consider. In many jurisdictions, children under a certain age may be exempt from income tax on their earnings, or there may be an income threshold before a tax return is required. In other jurisdictions, it may be the responsibility of the parents or guardians to report that income as their own. A potential source of conflict may arise from the fact that tax laws often apply to regular income, so each responsible party must define the concept of regularity for tax purposes.
If a child's income exceeds the threshold set in their jurisdiction, they may be required to file a tax return in their name or the person who enjoys the income. Parents should be prepared to document these earnings, including any tax withholdings, and report them properly on their own tax returns.
Parents should consider implementing financial control to oversee and manage their children's income generated on Roblox. This may include opening separate bank accounts or using a parental account on Roblox to manage income and related expenses on the platform.
Tax Withholdings - Advance Payments -
Roblox is a U.S.-based company located in California. When registering on the platform, users can specify whether they are U.S. residents or not. This declaration is solely for the purpose of reporting income to the local tax authorities. In all cases, Roblox withholds a 30% tax on each payment it makes. This aspect adds complexity because if it is necessary to declare the income, it may be possible to credit the advance tax payment. Unfortunately, there is no way to interact with the platform to claim lower withholding rates through Double Taxation Avoidance Agreements.
In summary, parents whose children generate income on Roblox should be aware of the tax implications associated with these earnings. Roblox's business model, which includes the sale of virtual items and game passes, can generate significant income for children. It is crucial to understand local tax laws, monitor income and tax withholdings, and teach financial literacy and tax responsibility as essential skills to children participating in Roblox's virtual economy.