Bonuses and commissions, classified as supplemental income, may be taxed either under ordinary income rates or by a flat rate determined by the total commission amount, explains the Houston Chronicle. If an employee’s total commission is higher than $1 million, a 35 percent tax must be applied, as of 2015.Continue Reading
Bonuses, commissions, overtime pay and a number of other forms of compensation are supplemental income according to IRS standards, and they can be taxed in one of two ways. A 25 percent tax rate is applied to the commission, or the commission is added to the employee’s regular pay, and the sum is taxed as ordinary income. The 25 percent flat tax may only be applied if the employee’s commission and regular pay are separate, and if income tax was withheld from regular pay in the same or preceding calendar year as the commission payment, notes the Houston Chronicle.
In addition to taxes on ordinary and supplemental income, employers must also pay Social Security, Medicare, and federal and state unemployment taxes. While federal income taxes are calculated according to that year’s tax brackets, state taxes vary considerably. Medicare and Social Security are flat-rate taxes, and the federal unemployment tax is a flat-rate tax applied to the first $7,000 an employee earns; payment of this may be used as a credit for state unemployment taxes, states the Houston Chronicle.Learn more about Income Tax