Is a commission check taxed at a higher rate than a salary check?

[curtis-johnc]

I have the ability to increase my salary and decrease the amount of my commissions. If commissions are taxed at a higher rate than a salary I want to increase salary and decrease commission to pay less taxes.

[MinhT · Accepted solution]

Both salary and commissions are taxable income. You report them on your tax return and your taxable income (after deductions and exemptions) are taxed according to your filing status and your tax bracket. So the short answer is that salary and commissions are taxed at the same rate.

However, if your commissions are paid without federal tax withholding and social security & Medicare deductions and then reported on form 1099-MISC, you will be worse off as you will be subject to self-employment tax at 15.3% (which is the equivalent of both the employee's and employer's shares of Social security and Medicare tax.

[Critter]

It may seem like commission checks are taxed at a higher rate then your salary checks because they are usually much larger than the normal paychecks so they fall into a higher tax bracket for the withholding purposes.  However, when all your income & withholding from all sources are entered on the annual tax return any over withholding is added to your refund.  So it balances out in the end.  If your refunds are higher than you like then increase your W-4 allowances so your regular paychecks aren't hit as hard to make up for the commission checks.

[seprima1]

Are commission checks required to be taxed at 35%

[Carl]

Commissions and earned income are taxed exactly the same. However, your employer is required by law to withhold an absolute minimum of 25% from a commission check. So if at tax filing time all your income puts you in a lower tax bracket (and it probably will) then some of that 25% withheld from your commissions will be refunded to you by the IRS.

[Anonymous]

if your commissions on included on your W-2 (which they should be if from same employer) the tax rate is the same. 

if you earn commissions not included on a w-2,  you would file schedule C.  the regular income taxes are the same.   but in addition if net schedule C income is over $400 you would pay up to about 15% in self employment tax in addition to the regular income taxes.

but again if they are on the W-2 ,   it makes no difference whether it's salary or commissions. 

[Hal_Al]

In addition to the 25% required federal income tax withholding on lump sum payments, like bonuses, commissions and severance, there will be FICA and state tax. So, 35% is not unreasonable.  Most people  get some back, at tax filing time

[staceyann1975]

We have gone to file and owe $4000. We always get a return  and nothing has changed with our income and deductions After comparing my husbands pay stubs from 2018 to 2019, it is obvious they only charged his monthly commission checks at 6%. What now? Can they tax commission at whatever they choose? It was taxed at 22% in 2018, correctly.  

[DMarkM1]

With the monthly commission checks it appears the employer simply counted all as W2 pay for tax purposes and withheld based on his W4.  If the payment were lump sum then the withholding would have been 25%.  I suggest working with the employer to find the right balance for withholding.  

[Jrmoralez]

Hi!  Any percent of my paycheck is commission based. I was reading online that your employer contact you at a 22% flat commission rate or some aggregate formulation. Is that not correct?

[Jrmoralez]

Is there a tax difference between commission and bonus?

[Hal_Al]

Is there a tax difference between commission and bonus?

Yes and no.  At tax filing time, all compensation is taxed the same.  But employers are required to withhold federal income tax, on lump sum payments (like a bonus), at the higher 22% rate.  For most people, that is too much, and you will get some of it back at tax filing time.  If your commission is also paid as a lump sum (such as at year end), it too may be subject to the higher withholding rate.  Commission, paid each pay period are not subject to the higher rate. 

[Jrmoralez]

Thank you for answering that!  I average 130k per year in income.   70% of that is commission.  On each pay check what percent should I be paying to federal?  
my last paycheck gross was $12,666.  I paid  3,297$ in federal taxes.  I also paid $785 Social security,  $183 Medicare,  and $644 state.  I’m  in the system as single with 2 dependents.  I think this is too high.  When I factored in all of what was taken out  of that check, literally 40% was gone.  I think this maybe she calculated this check based on “biweekly” pay but only my hourly is biweekly.  My “commission” is monthly.

[Jrmoralez]

This already puts my at about 26% federal tax which is higher than 22% so I should address it and say that I should be taxed at 22 for my commission portion right?

[Hal_Al]

They don't have the ability to do that. They have to use the IRS tables.