Educational Center
- What Is a Dependent Exemption?
- What Does Adjusted Gross Income Mean?
- Income Tax Return Amount Due Meaning
- Business Taxes
- What Is a Commission?
- Direct Deposit Definition
- What Is Direct Tax?
- Earned Income Definition
- What Is the Earned Income Tax Credit?
- Electronic Return Originator Meaning
- What Is a Flat Tax?
- What Is an Injured Spouse Claim?
- What Does IRS Innocent Spouse Relief Mean?
- What Is Property Tax?
- Tax Deficit Meaning
- Electronic Filing
- Employee Taxes
- Excise Tax
- Tax Exempt
- Compulsory Filing of Income Tax Return
- Gross Income Meaning
- What Are Exemptions on Tax Returns
- Test to Become a US Citizen
- What Is Head of Household
- What Is Federal Income Tax?
- What Is an Authorized E-File Provider?
- Who Needs to File a Tax Return?
- Learn All About Financial Records
- What Is An Offer in Compromise and What Does It Mean?
- What Does Non Collectible Status Mean?
- What Is a Federal Tax Lien?
- Benefits Received Principle Definition
- Bonus Definition
- Ability to Pay Definition
Commission refers to additional compensation received by an employee after completing a task or tasks. Usually, a commission is gained after reaching a specific goal, like selling a certain number of products or services, either individually or over time. Commissions are also common for recruiters, who can get commissions based on placing a certain number of individuals.
However, many times people are confused about what is a commission vs. a bonus.
Commission vs. Bonus
When comparing the concepts of commission vs. bonus, you should note that a bonus is many times a fixed amount that is awarded after a specific condition is met, as opposed to being awarded by the completion of actions.
In a commission pay structure, employees are rewarded for successful actions, e.g. $5 per unit sold. In contrast, a bonus is not typically part of an employee’s regular pay schedule, but a reward for meeting an objective, e.g. a $200 bonus after 2000 units are sold in a month.
Do Commissions Get Taxed?
Commissions are taxed. They are usually lumped together with your regular salary and taxed according to your tax bracket, while bonuses are not. Bonuses under $1 million are typically subject to a 22% flat rate, with the portion over $1 million being taxed at 37%. Employers have a choice of withholding your taxes based on a percentage or aggregate rate. Withholding at a percentage rate is more common since it is both easier to understand and to implement.
Regardless of what method they use or whether your commission is lumped together with your salary, your employer will probably still withhold funds for Social Security and Medicare.
If you are still wondering about commissions vs. bonuses and how your taxes are affected by them, contact us today. Our tax services are designed to help you understand your tax burden as well as overcome it.