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anyone here a commissioned salesman? Or a tax pro?


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#1 of 15 OFFLINE   Philip_G

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Posted October 26 2006 - 08:59 AM

curious how your employer handles the taxes on the commission if you're base + comm.

#2 of 15 OFFLINE   Patrick_S

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Posted October 26 2006 - 02:00 PM

I work for a Fortune 500 company and my commission is treated just like my base income. They withhold the taxes when they cut me my check. I think that is the standard practice with most employers.

#3 of 15 OFFLINE   SethH

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Posted October 26 2006 - 02:57 PM

I am neither a salesperson nor a tax pro, but I'll throw in my $.02 anyway . . . I've had some friends who were in sales in the past and remember them talking about how taxes were withheld at a higher rate than if they were straight salary. I guess this is done to deal with the ups and downs of commission, but certainly isn't ideal. The good news is that you probably end up with a big refund. The bad news is that you've got less money in each paycheck.

#4 of 15 OFFLINE   Philip_G

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Posted October 27 2006 - 08:16 AM

Quote:
Originally Posted by Patrick_S
I work for a Fortune 500 company and my commission is treated just like my base income. They withhold the taxes when they cut me my check. I think that is the standard practice with most employers.
dammit that's what I was afraid of.

for years it used to be our commish came on one check and pay came on another, both taxed in accordance with our deductions we select, now we've been bought out by a fortune 500 company and our commish MUST be taxed at 25% because it is considered "additional income" and your deductions don't mean a thing on the commission, it's 25% no matter what.

they tell us that is the law but I think it's 100% bullshit.

#5 of 15 OFFLINE   Philip_G

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Posted October 27 2006 - 08:18 AM

Quote:
Originally Posted by SethH
I am neither a salesperson nor a tax pro, but I'll throw in my $.02 anyway . . . I've had some friends who were in sales in the past and remember them talking about how taxes were withheld at a higher rate than if they were straight salary. I guess this is done to deal with the ups and downs of commission, but certainly isn't ideal. The good news is that you probably end up with a big refund. The bad news is that you've got less money in each paycheck.
unfortunately I can't tell the mortgage "you'll get your money when I get my refund"

for example out of my last paycheck alone I paid 25 percent of the federal taxes I've paid for the year!

#6 of 15 OFFLINE   Mort Corey

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Posted October 27 2006 - 09:53 AM

Just curious, did/do they withhold FICA stuff out of commission payments as well?

Mort

#7 of 15 OFFLINE   Philip_G

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Posted October 27 2006 - 10:12 AM

Quote:
Originally Posted by Mort Corey
Just curious, did/do they withhold FICA stuff out of commission payments as well?

Mort

I believe so, yes.
all I know is it cost me about 800 bucks out of pocket on my last check doing it this way.

I'd have to look at my stub to be sure and they're at work in my desk drawer.

#8 of 15 OFFLINE   CameronJ

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Posted October 27 2006 - 12:31 PM

Your employer is basically full of it (sort of). Here's how it works.

Federal tax withholding is figured on a per-paycheck basis. Let's say you are on commission and only make your base this paycheck - let's say $500. The withholding on $500 (assuming no allowances) is $45.55. You will of course have social security and medicare (FICA) withheld in the amount of $48.25 (7.65%).

The next paycheck you had a great period. Let's say you get your base plus $2,000 commission, for a total of $2,500. If the employer lumps the commission in with your base pay (doesn't identify them separately) then your total tax withholding is 471.55. Notice how the percentage is higher - the withholding rates are structured pretty much like the tax tables (15% up to x, 25% on the excess up to y, etc). What's key here is the "if" the employer lumps the commission in with your base pay. They don't have to.

However, if your employer identifies commissions separately, then they can (can - not have to) withhold a flat 28% on your commission.

If you find that the withholding on your commission rate is too high - increase your allowances on your regular check to compensate.

#9 of 15 OFFLINE   Philip_G

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Posted October 27 2006 - 12:40 PM

Cameron, do you have any resources that I might be able to show them?

All of my coworkers are upset about this and accounting is completely unwilling to change or look at alternatives, in fact here is their explanation directly.

Quote:
Originally Posted by accounting type with MBA
Per the IRS regulations, commissions, bonuses, etc are considered supplemental income and as such need to be taxed at a straight 25%, not at your regular earnings/deductions rate. You can recieve commissions on a seperate check or one check with your regular paycheck, just let me know.

In order to be in compliance with the IRS regulations all commissions and bonuses will be taxed at the straight 25%.

Your explanation is spot on. One period I get my $XXXX base, and the next I get my XXXX base plus my comission for the month and they do divide it out on the statement as salary and commission.

#10 of 15 OFFLINE   SethH

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Posted October 27 2006 - 01:24 PM

Well, it looks like your old employer and new employer are both correct. Here's a link to the IRS guidelines -- which only went into effect recently:

http://www.irs.gov/g....162048,00.html

#11 of 15 OFFLINE   Philip_G

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Posted October 27 2006 - 01:46 PM

Quote:
Originally Posted by SethH
Well, it looks like your old employer and new employer are both correct. Here's a link to the IRS guidelines -- which only went into effect recently:

http://www.irs.gov/g....162048,00.html
AH HA! You're the MAN!

Quote:
Originally Posted by IRS
How do you withhold on supplemental wages?

In general, there are two methods available:

Aggregate – include the supplemental wages with the regular wages for the pay period, and withhold according to the tables used for regular wages. If the supplemental wages are paid concurrently with regular pay, they must be aggregated with the regular pay for that payroll period.

Optional – apply flat rate withholding (currently 25%) to the supplemental wages.


Leads me to believe there is no reason to follow the optional method.

#12 of 15 OFFLINE   JohnRice

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Posted October 27 2006 - 06:19 PM

I had completely forgotten about this, but I used to have a sales job where my salary was always less than 50% of my income, and in a good year, it could be as little as about 20%. My employer did not offer the option to lump salary and commission together. We got our salary every 2 weeks and commission once a month. I seem to recall most of the salespeople had little or no withholding on their salary to compensate for the excess commission withholding. Even at that, I always got at least 3 or 4K refund at the end of the year. On my last commission check (this was Jan 1994) the required withholding increased to a flat 50%!!! It was supposedly a new requirement from the IRS that year.

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#13 of 15 OFFLINE   Kirk Gunn

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Posted October 28 2006 - 01:05 AM

Quote:
Leads me to believe there is no reason to follow the optional method.

Path of Least Resistance: The payroll/accounting folks will follow the method that is the least amount of effort for them.... which is probably the flat percentage deduction. Good luck trying to get them to change.

#14 of 15 OFFLINE   CameronJ

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Posted October 28 2006 - 01:55 AM

Quote:
Originally Posted by SethH
Well, it looks like your old employer and new employer are both correct. Here's a link to the IRS guidelines -- which only went into effect recently:

http://www.irs.gov/g....162048,00.html

Whoops - looks like what I was looking at was a little dated. My 28% is actually 25% - but everything else looks about right.

[The following assumes a single person with no allowances]

The reason the IRS allows for the separate identification and withholding on supplemental wages is actually to make it more fair for the employee. Basically, if I get a big commission check / bonus /etc one pay period (let's say $15k), under the standard withholding tables the employer would have to withhold 33% of that. Essentially, the withholding tables assume that whatever you make this period is consistent with the rest of the year. Larger one-time payments essentially result in over-withholding if you aggregate the supplemental payments in with regular salary.

Here's a link to a tax withholding table - http://www.purdue.ed...taxtables06.pdf

Also - while the link Seth provides is in the Government Entity section of the IRS website, the same rules apply for regular employers as well. Supplemental income is discussed on page 13 of this publication - http://www.irs.gov/pub/irs-pdf/p15.pdf

#15 of 15 OFFLINE   Philip_G

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Posted October 28 2006 - 04:06 AM

Quote:
Originally Posted by Kirk Gunn
Path of Least Resistance: The payroll/accounting folks will follow the method that is the least amount of effort for them.... which is probably the flat percentage deduction. Good luck trying to get them to change.

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