How Is Commission Taxed?
Updated on Sep 11, 2026By CalculatNow Editorial TeamReviewed by the CalculatNow editorial team6 min read
The deal closed at $10,000. The deposit was $7,035. That gap is not evidence that commission is punished by the tax code — it is a withholding rule, and a good part of the difference comes back to you.
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Commission is taxed at exactly the same federal rates as your salary. What changes is withholding — how much your employer holds back before the money reaches you. The IRS classes commission as a supplemental wage, and the usual result is a flat 22% withheld regardless of which bracket you are actually in.
That single distinction explains almost every complaint about commission and tax. It is also the reason a strong month can feel like a penalty when it is really a loan.
Is commission taxed at a higher rate than salary?
No. Commission is taxed at the same federal income tax rates as your salary. The difference is withholding: the IRS treats commission as a supplemental wage, so employers usually hold back a flat 22% instead of using the rate from your W-4. Your real tax is settled when you file.
Withholding is an estimate, not a bill. Every dollar withheld from every paycheck is credited against one number — the total tax you owe for the year — and the return reconciles the two. If 22% was more than your situation required, the excess comes back as part of your refund. If it was less, you owe the shortfall.
Key point
A flat 22% is not a 22% tax rate. It is 22% held in advance against a bill that has not been calculated yet.
The 22% rule: how supplemental withholding works
A supplemental wage is pay that sits outside your regular salary or hourly wage. The IRS defines the category in Publication 15, and it is broader than most people expect.
- Commissions and bonuses
- Overtime pay and back pay
- Severance and accumulated sick pay
- Awards, prizes and taxable fringe benefits
- Retroactive pay rises
For 2026 the federal supplemental withholding rate is 22% on the first $1 million of supplemental pay an employee receives in a calendar year. Above $1 million, the rate on the excess is 37% — a genuine cliff, not a bracket, and the reason some people see that figure on a very large payout.
The flat rate exists because it is simple for a payroll system to run. It does not need to know your filing status, your spouse's income, or your deductions. That convenience belongs to the employer's software, and the cost of it — the use of your money until you file — is yours.
The aggregate method, and why your check can look worse
The flat 22% is one of two methods your employer may use. It applies when commission is paid separately from your salary, or paid together but identified separately on the payslip. The alternative is the aggregate method, and it can withhold considerably more.
Under the aggregate method your commission is lumped in with your regular pay for that period, and the payroll system withholds as though every paycheck of the year were that size. A $4,000 salary period with a $10,000 commission bolted on looks, to the software, like a $364,000 annual salary. It withholds accordingly.
Both methods withhold from the same commission, and both settle to the same tax bill on your return — only the timing of the money differs.
| Percentage method | Aggregate method | |
|---|---|---|
| How it works | Flat 22% on the commission | Commission added to regular pay, withheld as if every period looked like that |
| When it applies | Commission paid or identified separately | Commission paid in one lump with salary |
| Withheld on $10,000 | $2,200 | Often more, sometimes far more |
| Who decides | Your employer | Your employer |
You do not get a say in which method is used, and payroll software does not ask for your opinion. What you can change is your W-4 — extra allowances or a lower withholding request will offset a chronically over-withheld commission, and the payroll tax calculator will show you the effect before you file the form.
What else comes out: FICA, state tax, and the 1099 case
Federal income tax withholding is the largest deduction but not the only one. Commission is wages, so it carries the same payroll taxes as salary.
Four separate deductions can hit a commission payment, and only the first is the flat supplemental rate.
| Deduction | Rate | Applies to |
|---|---|---|
| Federal supplemental withholding | 22% | First $1M of supplemental pay per year (37% above) |
| Social Security | 6.2% | Wages up to $184,500 in 2026 |
| Medicare | 1.45% | All wages, no cap |
| Additional Medicare | 0.9% | Wages above $200,000 |
State income tax sits on top and varies enormously. Several states set their own flat supplemental rate; a handful levy no income tax at all, so the whole state line is zero. Check your own state's rate rather than assuming a national figure — this is the number that most often makes two identical commissions land differently.
If you are paid on a 1099
Independent contractors are a different case entirely: nothing is withheld. The full commission arrives, which feels better and is more dangerous. You owe self-employment tax of 15.3% on top of income tax, and the IRS expects payment quarterly rather than in April.
Watch out
A 1099 rep who spends the full commission has spent the tax as well. Setting aside 25–30% of every payment is the standard defence.
A $10,000 commission, end to end
W-2 employee, percentage method, no state income tax
The arithmetic behind the number in the first line of this article.
- Commission earned
- $10,000
- Federal supplemental withholding at 22%
- − $2,200
- Social Security at 6.2%
- − $620
- Medicare at 1.45%
- − $145
- Deposited
- $7,035
Just under 30% of the payment disappeared, which is where the sense of being taxed harder comes from. But only the $765 of FICA is settled and final. The $2,200 is a deposit against a bill not yet written.
Suppose that $10,000 was the only commission in a year where your effective federal rate worked out at 12%. Your actual federal tax on it is $1,200. You handed over $2,200. The $1,000 difference returns to you as part of your refund, and the Treasury pays nothing for having held it in the meantime. Work your own figures through the income tax calculator to see where your effective rate really lands.
Common mistakes
Treating the withheld amount as the tax bill. The payslip shows what was taken, not what was owed, and people budget from the wrong number all year. It costs you an accurate picture of your own income. Use your effective rate from last year's return as the working figure instead.
Never revisiting the W-4 after a big commission year. The form is filled in once at hire and forgotten, usually when the reader's pay looked nothing like it does now. A rep consistently over-withheld by several thousand dollars has parked that money with the Treasury for a year and earned nothing on it. Refile the W-4 when your pay mix changes.
Assuming 37% means the top tax bracket. It does not. The 37% supplemental rate applies only to supplemental pay above $1 million in a calendar year, and it is a withholding rate, not a bracket. Confusing the two turns a reconcilable overpayment into a panic.
Spending the gross on a 1099. Contractors see the whole payment and treat it as take-home, then meet a self-employment tax bill of 15.3% plus income tax the following April. The cost is a four-figure shortfall and possible underpayment penalties. Move 25–30% out of the account on the day it lands.
Comparing a commission check to a salary check. Salary withholding reflects a blended rate built from your W-4; commission withholding is a flat rate applied to one payment. Holding them side by side always makes commission look worse and tells you nothing. Compare your total tax across the year instead — and if you are weighing an offer rather than a payslip, start from what an OTE is really worth.
Key takeaways
- Commission is taxed at the same rates as salary. Only the withholding differs.
- The default is a flat 22% federal withholding, rising to 37% on supplemental pay above $1 million a year.
- The aggregate method can withhold far more, and your employer, not you, picks the method.
- FICA of 7.65% is final; the income tax withholding is not, and over-withholding comes back at filing.
- On a 1099 nothing is withheld at all — set aside 25–30% yourself.
Commission Calculator
Work out a commission, the split behind it, and what actually reaches you.
Frequently asked questions
- How much tax do I pay on my commission?
- You pay whatever your normal income tax rate works out to for the year — commission does not have its own rate. Your employer will usually withhold a flat 22% federally, plus 7.65% in Social Security and Medicare, but the 22% is an advance payment that is reconciled when you file your return.
- Why is my commission taxed at 37%?
- The 37% figure is the federal supplemental withholding rate on supplemental pay above $1 million in a calendar year. Below that threshold the rate is 22%. If you are seeing something close to 37% on a smaller payment, your employer is most likely using the aggregate method, which withholds as though every pay period looked like that one.
- Is commission taxed like a bonus?
- Yes. The IRS puts commissions and bonuses in the same category — supplemental wages — so both are subject to the same flat 22% withholding rule, and both are taxed at your ordinary income rates once the year is reconciled. Overtime, severance and back pay are treated the same way.
- Do I get commission tax back?
- Often, yes. If the flat 22% withheld was more than your actual tax on that income, the excess is returned as part of your refund when you file. If your effective rate is above 22%, the reverse applies and you will owe the difference rather than receive anything back.
- How is commission taxed for a 1099 contractor?
- Nothing is withheld — you receive the full amount and owe the tax yourself. That means income tax plus self-employment tax of 15.3%, paid in quarterly estimated instalments rather than annually. Most contractors set aside 25–30% of each payment to cover it.
How we worked this out
- Publication 15 (Circular E), Employer's Tax Guide — supplemental wages — Internal Revenue Service. Last checked Sep 11, 2026.
- Publication 15-T, Federal Income Tax Withholding Methods — Internal Revenue Service. Last checked Sep 11, 2026.
- Topic no. 751, Social Security and Medicare withholding rates — Internal Revenue Service. Last checked Sep 11, 2026.
- Contribution and Benefit Base — Social Security Administration. Last checked Sep 11, 2026.