This is my understanding based on reading the Itch.io docs: Accepting Payments and Getting Paid. I’m not a lawyer, and thing might be a bit different in different countries.
There are two payment modes you can choose from, one is called “Collected by itch.io (Payouts)”, and the other is “Direct to you”. This is a brief overview of the differences.
Collected by itch.io (Payouts)
In this mode, Itch.io is collected the money from all sales for you. Once you have collected a sufficient amount (I believe 5$ or more), you can request a payout. In this mode Itch.io takes care of sales taxes when the purchase is made. You are however responsible for declaring income tax in your country.
You need to complete a tax interview so Itch.io can decide your tax status. The default amount you have to pay is 30% for taxes, but some countries have treaties with the US, which reduce or eliminate it. This will be calculated on your tax interview.
In this mode, Itch.io is the “Merchant of record”.
Direct to you
In this mode, every sale goes directly to you. You become the “Merchant of record” and are responsible for sale taxes. Itch.io can prepare the needed tax paperwork, but I’m not familiar enough to know to what extend that goes.
This mode might take longer to setup, and has more responsibility on your part, but might save you some costs on taxes, at least if you know what you are doing.
Whichever mode you choose, I believe you always have the option to go back and forth. If you are new to all this, I would personally suggest the “Collected by itch.io (Payouts)”, as Itch.io would take care of most things for you, and you’d only need to worry about income tax.
To pay income tax, the process is different on each country. You would usually declare yourself as self-employed, and declare that money as income. Your country then would decide how much you owe in taxes based on that information. If unsure, it’s best to contact a professional.
For more information, you can visit the link: Accepting Payments and Getting Paid
Hope that helps. Looking forward to seeing your paid projects around :)