Employer is offing a choice of Bonus (taxes withheld) or Commission (taxes not withheld). Which is better and what are the outcomes of each when tax season rolls around?

[Liz82]

Just like the title says, my employer is offering us a choice on how we want this pay that is separate from our regular salary to be distributed. They will hold taxes if we pick bonus, they won't if we pick commission. 

Edit: there was a miscommunication. This issue is no longer relevant. Thanks for all who helped!

[xmasbaby0]

Your tax will ultimately be on the total amount of income you receive.   There will be no difference in your tax liability for the income whether you have tax withheld upfront or pay the tax due at tax time.   You do not mention the amount of the bonus/commission.   If you end up owing a lot at tax time you could be subject to an underpayment penalty.   

[Bsch4477]

Commission is generally taxed like self employment so you would be taxed on the income at your marginal rate in addition to 15.3% self employment tax. 

[rjs]

It sounds like your employer does not completely understand the tax laws. All payments from your employer are considered wages and should be included in your W-2, no matter what the payment is called. I think xmasbaby0 is assuming that your employer will do this correctly and include it in your W-2, even if you choose to call it commission. (The legality of not withholding taxes on the commission is questionable. It's not clear why the employer would offer you the choice.)

But if you think you want to choose commission, you should make sure that your employer will handle it correctly. Some employers incorrectly treat extra payments such as a bonus or commission as nonemployee compensation instead of as wages. They report the payment separately on a 1099-NEC or 1099-MISC instead of including it in the W-2. If that is what your employer is planning to do if you choose commission, it will create complications. Legally it is not self-employment income. You are not self-employed, even if you earn commissions. To avoid paying self-employment tax you would have to report it on your tax return in a way that tells the IRS that the employer did not report it correctly. That could subject the employer to IRS scrutiny.

(It's remotely possible that if you choose commission the employer is planning to pay it in cash, "under the table," with no reporting at all. That, of course, is totally illegal.)

On the whole, it seems that it would be best to choose the bonus. You don't have to worry about having a big tax bill at the end of the year or paying extra tax, and you don't have to get into a discussion with your employer about how they are going to report the payment to the IRS.