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Commissions are considered a “supplemental wage” by the Internal Revenue Service and are sometimes taxed differently than regular wages depending on how they are paid out by the employer to the employee.
Do you work a job where you earn a salary and commission? Have you got yourself wondering why your commission is taxed differently?
A commission is considered a “supplemental wage” by the Internal Revenue Service (IRS). The IRS defines supplemental wages as wage payments to an employee outside of his or her regular wages. This includes bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses.
The taxes are calculated based on how your employer pays you normally. For example, if your bonus or commission is included in your regular pay, then it’s taxed according to normal federal and state withholding. If you receive it outside your regular paycheck, then it becomes supplemental and your commission is taxed at a rate of 25%.
Employers are still required to withhold Social Security and Medicare from these wages too. Full details on supplemental wages can be found in Publication 15 (Circular E) from the IRS:
Are you starting a new business? Have you thought about where you would like to start a business? Learn more about the best small cities to start a business.
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