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LinJo
Returning Member

Commission withholdings

My work was bought by a new company and now the withholding for Fed has doubled what it was; they stated first it was due to the purchase of the company.  Now that it is because we are paid commission.  Please explain how this works.  It is the same commission pay that was with the prior company, so not sure why it is different now.

2 Replies
KarenL4
Employee Tax Expert

Commission withholdings

Hi, LinJo:

 

The IRS considers commissions supplemental wages. This from Publication 15:

FROM PUB 15:

Supplemental Wages

Supplemental wages are wage payments to an employee that aren't regular wages. They include, but aren't limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, reported tips, retroactive pay increases, and payments for nondeductible moving expenses.

END EXCERPT

 

Supplemental wages when separately identified are withheld at 22% for federal taxes.  I copied an excerpt for you from Publication 15 below.

 

Hope this clears it up.  If not, maybe you can find a kind soul in your payroll department who can explain in more detail.

 

Cheers!

 

 

INFO COPIED FROM PUBLICATION 15

Supplemental wages combined with regular wages.

 

If you pay supplemental wages with regular wages but don't specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period.

Supplemental wages identified separately from regular wages.

 

If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages.

  1. If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages.

    1. Withhold a flat 22% (no other percentage allowed).

    2. If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages and withhold federal income tax as if the total were a single payment for a regular payroll period. If there are no concurrently paid regular wages, add the supplemental wages to, alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Subtract the tax already withheld or to be withheld from the regular wages. Withhold the remaining tax from the supplemental wages. If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, figure the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax.

  2. If you didn't withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1b.

Regardless of the method you use to withhold income tax on supplemental wages, they’re subject to social security, Medicare, and FUTA taxes.
END INFO COPIED FROM PUBLICATION 15
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KochuK
Employee Tax Expert

Commission withholdings

Hi LinJo, Thanks for your questions.

 

There are many items/deductions in between from gross pay to net take home pay. If possible, you should compare the pay stub from the prior company with that of new company, and identify the big ticket items of change that result in a much smaller take home pay.

 

In general, commission based employees are "Statutory Employees" who also file Schedule C, Profit and Loss from Business. And the employer withholds social security and Medicare taxes,

https://www.irs.gov/businesses/small-businesses-self-employed/statutory-employees

 

Once you identify the item being "Federal income tax withheld", you can evaluate and re-submit a new W-4 to adjust it.

Form W-4 Employee’s Withholding Certificate

https://www.irs.gov/pub/irs-pdf/fw4.pdf

 

Hope the above helps.

 

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