Salary vs Commission/Bonus Tax

[rozeee14]

I live in New York City & my employer wants to increase my salary & decrease my commission + bonus. The commission/bonus i receive is already taxed & included on my W-2 (not a 1099). My question is will I take home more money after taxes are paid if I make overall the same amount of money, but more $ is shifted into my salary. Are bonuses/commission taxed more than salaries? Thanks!

[VolvoGirl]

If it's on your W2 it is all taxed the same.  Sounds like just shifting the commission and bonus to each paycheck?  Overall for the year it will work out the same.  

[Mike9241]

they're all taxed the same as ordinary income.  so if your employer increases your salary but decreases bonus and commissions by the same amount you are in a no-win no-lose position.   the only thing that may differ is the amount you receive at various times. 

[NCperson]

commissions and salary are all the same thing: they are earned income from the viewpoint of the IRS, so they are all taxed the same.

However, and this is just a timing difference, the federal withholdings for salaries and bonus come off different tables issued by the IRS.  So it could be that your total federal tax withholdings on your paychecks are somewhat lower if the salaries are higher and the commissions are lower, which makes the refund in April lower, but the tax liability is exactly the same.

[rozeee14]

That makes sense. If this is the case, would you suggest with holding more per pay check so I don't owe more at the end of the year? Another thought I had, is does it make a difference which paychecks (salary or commission) I pull from for my 401k? thanks for your help!

[NCperson]

it's hard to say whether to withhold more - that is a personal decision . if you have owed in the past, then it is likely you will owe more next year, assuming the earnings are the same, and more of the income is tilted towards salaries and not towards bonuses. 

taxwise, it really doesn't make a difference which paychecks the 401k money is pulled from.... what is probably more importnat from a financial planning aspect is to maximize the contributions if the company is matching,