Eldon Broady

How is Sales Commission Taxed?

No one enjoys doing their taxes, especially when you have special considerations you have to make. If you make a salary, but also get paid sales commission, you might have to file your taxes a little differently than standard salaried employees. So how do you report sales commission properly when you file your taxes this year?

Sales Commission is a Supplemental Wage

The Internal Revenue Service labels sales commissions as supplemental wages. The basic definition of a supplemental wage is any wage that is paid outside of your normal salary rate. So sales commission, bonuses, and other forms of extraneous payment will fall under this umbrella. Now, the percentage at which these supplemental wages are taxed will depend entirely on how your employer pays them out. Let's look at the different situations:

Included with regular pay: Some employers include commissions and bonuses into your regular pay. If this is the case, then your bonuses and sales commissions will already be taxed according to your current federal and state withholding status. This is easiest for the employee, but this isn't always the case.

Receiving commissions outside your regular paycheck: If your commissions are paid to you outside your regular paycheck, then they'll fall under the supplemental wage tax rate. This is taxed at 25% flat. This means that you'll need to set aside 25% of your commissions to pay out to taxes at the end of the tax year. Thus, it's important that you're tracking your sales commission payments throughout the year, so you can have an accurate total.

Tracking Sales Commision

The easiest way of tracking sales commission is through a sales commission system. One of these systems will make tracking sales commissions simple and accurate. They're able to report all of your commissions and show you how much you made on a quarterly or yearly basis. This is an extremely useful come tax season, because then you don't have to keep track yourself and calculate everything on your own. Using one of these systems has tons of other benefits, especially to employers. It makes things much more convenient for sales teams and it helps employers keep everything more clear and organized.

Author Resource:-

Eldon Broady writes about business software and services like commission tracking platforms, softwares etc. You can find his thoughts at sales management blog. Click here for more information on a commission agreement.