Going 'tax exempt' for big commission checks?

Anyone have any thoughts on changing your tax status to exempt for larger commission checks? I haven't done the math, but because I get paid quarterly on commission it seems that my tax rate is a lot higher than what I actually should owe.


Or maybe there is a better strategy out there?

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7
youKNOW
Politicker
3
Sales Manager
Yeah I'd suggest NOT going exempt. A lot of people used to do it when I worked in the mortgage business...and a lot of them were successful at getting nice big audits as a result. By all means, look in to whatever legal write-offs you can. Also, check your withholdings. It's pretty easy to switch them over to a percentage vs going with the Single 0,1,2,3 route.
RickC137
Opinionated
1
Account Executive
Thanks this is helpful! 
Telehealth_2the_Moon
Notable Contributor
1
Director of Business Development
I've done this for non-commission things such as bonuses and PTO payouts. That being said, not a tax pro or anything so use this info to do your own research or better yet talk to a pro about it.

Unless your company does things in a specific way, you are going to get taxed at a higher rate than you should be when your commission check is higher than your standard bi-weekly or whatever check. 


You will get it back at the end of the year via your refund, but if you want it now ( https://www.youtube.com/watch?v=HX0fIi3H-es ) then you can do what you've explained. Go tax exempt or adjust your withholding number to bring the taxed total down. 

It's not tax fraud as long as at the end of the year you have paid what you owe on your total earnings. 

Its taxed high for a few reasons, but mostly comes down to each time you get a check, the automatically deducted amount is calculated assuming that is your check every check, coming up with a yearly total, and taxing you at the tax rate you would get at that total. But this obviously isn't the case if your commission check is 10x your normal check, you'll come out way short of if you received the commission check every time. This is why you get it back in your refund. 

The downside to going tax exempt tends to directly relate to the process for changing your tax status. If it's a pain in the ass or takes some time to take effect, then you might have multiple checks go through. This will be regular checks that won't be getting taxed and means you'll owe that money back at the end. 

The choice is between:
1. No effort, less money now, but get it back in your refund
2. More effort (variable based on company, more money now, smaller refund or potentially owing money at the end of the year)
RickC137
Opinionated
0
Account Executive
Thank you this is very helpful. 
Ozz
Politicker
1
Account Executive
The new W-4 is super confusing. You can't select single 0,1,2 etc. anymore. Single 2 used to be great! I researched for 3 hours and still couldn't figure it out so I just put 10K for my dependents. We'll see what happens on the next check. 
funcoupons
WR Officer
0
👑
So...committing fraud? No, I'm too cute for federal prison.
RickC137
Opinionated
0
Account Executive
Maybe there is something I’m missing but I don’t think it is fraud unless you don’t end up paying what you actually owe at the end of the year. Could easily be wrong here though. 
Gizmo
Politicker
0
AE
Commission checks are taxed at the highest rate and if you overpay you get it back in your refund.

If you really want to commit tax fraud though do you king.
RickC137
Opinionated
1
Account Executive
I will do more research before making any moves but My understanding was that it is only tax fraud if you don’t actually pay at the end of the year. Shoulda made my question more clear. 
Forrester
2
Sales Exec
You’re correct. Agree with the other posts about switching to % but you’re technically and legally not doing anything wrong going tax exempt may just owe some back to uncle same rather than get a refund. At the end of the day that’s better than giving the gov that free loan on your money buuut wouldn’t suggest going too crazy and hold it to once per year if at all and expect to pay a third back.
CuriousFox
WR Officer
0
🦊
You should prolly consult a CPA.
braintank
Politicker
0
Enterprise Account Executive
Not a good strategy. You're just deferring when tax is due. You still owe the exact same. Wouldn't you rather get a refund vs a big bill?
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