Commission Taxed Higher than Base Salary?

I'm trying to understand taxes better to be smarter about keeping more of my hard earned commission checks. I've noticed commission gets taxed more as its supplemental income. Can someone help me understand this?


Does it make a difference in how commission is taxed if its with a regular paycheck or separate?


Should I be putting a higher percentage of my commission into my (unfortunately unmatched 401k)?


Thank you in advance - taxes always confuse me ๐Ÿฅด

Commission Taxation

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๐Ÿ’ฐ Compensation
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๐Ÿ’ด Money Management
15
Justatitle
Big Shot
10
Account Executive
When you receive commission often times the HR systems increase the withholding as the system assumes youโ€™re going to be paid a higher amount regularly and therefore in a higher tax bracket. You do get whatever you are overtaxed by back when you file your taxesโ€ฆ
poweredbycaffeine
WR Lieutenant
6
โ˜•๏ธ
This is often the case. The system calculates your total income based on the rate paid in the most recent checkโ€”you could go from 22% in your standard checks to 32% in a commission check based on calculation of total earnings if that rate stayed the same.
ChunkyButters
Tycoon
3
AE
Between @Justatitleย and @poweredbycaffeineย this is the correct answer.

When factoring in commission, your "yearly salary" now looks like you should be in a higher tax bracket. You'll get this money back when you do your tax returns and calculate your AGI.ย 

If you want this money sooner, look at filing quarterly, or talk to an accountant.
jefe
Arsonist
2
๐Ÿ
This is usually the case, definitely has been for me for the last decade+

Though I wish my tax rate is as low as PBC's numbers.. #canada (but also healthcare, so...)
Justatitle
Big Shot
0
Account Executive
But also Trudeau soโ€ฆ
jefe
Arsonist
3
๐Ÿ
Not Trudeau at all.. I got a decent tax return this year, big one last year.

It just is what it is
Justatitle
Big Shot
3
Account Executive
Sorry the joke wasnโ€™t clear, when you were saying Canada and having healthcare included in your taxes the joke was you also have to deal with Trudeau.ย 
jefe
Arsonist
1
๐Ÿ
ahh I thought you were blaming Trudeau. I don't mind him, certainly better than the alternatives.

They all tax us to hell lol
E_Money
Big Shot
6
๐Ÿ’ฐ
That is why tax fraud is so cool. And the best thing about it is that it's completely risk free! Try it out.
SaaSam
Politicker
2
Account Executive
Panama anyone?
E_Money
Big Shot
2
๐Ÿ’ฐ
Meet you there

FormerStartupJobHopper
Tycoon
3
AE
Commission is not taxed higher. It is withheld higher, you will get that money back in a tax refund.

Just choose what percentage of your pay you want to put into retirement and do it consistently and automatically. Don't vary it paycheck to paycheck
JDialz
Politicker
0
Chief Operating Officer
Claim โ€˜9โ€™ and sort it out it April.
TennisandSales
Politicker
2
Head Of Sales
so this could be different dependent on your situation.ย 

being married with 2 kids i have more deductions so my base pay is taxed less than my commission.ย 

I dont think you would be able to have both checks come as one. I think you company HAS to do it separate for their tax purposes.ย 

When it comes to putting money in a 401k, again this going to depend on other factors. (I was a financial advisor for 5 years before coming to saas, incase that makes a difference for you hahah!)ย 
I would want to know how old you areย 
how much you think you will save in a year ?ย 
Are you putting money away anywhere else?ย 
just a few started questions. (this would be a great use case for DMs! )
NotCreativeEnough
Big Shot
0
Professional Day Ruiner
commission can be paid on the same check. Most payroll systems are able to break it down into separate line items from your salary and tax the line items differently.ย 

With that said, most companies I've worked at pay it on a separate check. Makes it easier for everyone involved to keep track of things.ย 
CaneWolf
Politicker
2
Call me what you want, just sign the damn contract
Mine has always been taxed more due to the stuff @Justatitle and@poweredbycaffeine mentioned. I've had commission taxed north of 50% when you combined local, state and federal.
SaaSam
Politicker
1
Account Executive
That last sentence made me go into a mini panic attack.
Pachacuti
Politicker
1
They call me Daddy, Sales Daddy
Commission, in the US, is generally withheld at the highest level. Itโ€™s usually to your advantage so you donโ€™t end up owing taxes at the end of the year.
CuriousFox
WR Officer
0
๐ŸฆŠ
Mine is the same ๐Ÿค”
FinanceEngineer
Politicker
0
Sr Director, sales and partnerships
There are lays around how bonus and commission is withheld, and it is usually at the highest rates for states. Try is was passed mostly as a middle finger to Wall Street. There are also cases where HR systems calculate it as your new salary and withhold based on that, but you can most of the time have them fix it for one time events. You will get it back when you file your return though.
Sunbunny31
Politicker
0
Sr Sales Executive ๐Ÿฐ
Your original question was about if it was taxed differently depending on if it was on the same paycheck or not; the answer is no.ย  ย  I've seen it enter as 2 line items in my direct deposit or reflect as two stubs on my virtual dashboard.ย  ย I mentally claw 50% out when I've sold a deal, as that's what I usually see reflected in my net pay for commission.
farmtocity
Opinionated
0
SDR Manager
anyone following I sent a CPA my pay stubs and was assured it doesn't make a difference.ย 
JDialz
Politicker
0
Chief Operating Officer
If you donโ€™t have a 401k match donโ€™t lock up those dollars unnecessarily until age 59.5 and subject those dollars to RMDs in retirement.
Burdman
0
Owner
Double check how your payroll pulls out taxes. Horror story here (really wasnโ€™t that bad but that tax year sucked). Quick story.

My commission and base were taxed as if earned separately. I.e. $40k base was taxed as if I earned $40k and $40k commission was taxed as if I only earned $40k.ย 

I was being deducted as if I was in a $40k bracket not $80k. Shame on me for not checking, but do some quick math and check your shit.
farmtocity
Opinionated
0
SDR Manager
So you ended up owning the IRS $$?

I just got half my commission ripped from me today so the IRS will hopefully be owing me a lot of money next year.ย  This is how my CPA explained it.ย  Said I was doing it right when I sent paystubs.ย  Its sad seeing it taxed almost 50% though I fucking hate it.
9
Members only

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2

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24
Members only

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Question
24
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