Commission vs Bonus — How Each Is Taxed Differently
Commissions and bonuses are both classified as "supplemental wages" by the IRS and are subject to the same 22% federal withholding rate. But how they're earned, when they're paid, and how they affect your annual tax picture can be quite different. If you earn either — or both — understanding the tax mechanics helps you plan and avoid surprises.
Check your bonus or commission after all taxes with the Bonus Tax Calculator.
Tax Treatment: Same Rules, Different Patterns
| Feature | Commission | Bonus |
|---|---|---|
| IRS classification | Supplemental wage | Supplemental wage |
| Federal withholding | 22% flat | 22% flat |
| FICA taxes | Yes (7.65%) | Yes (7.65%) |
| State income tax | Yes | Yes |
| How earned | Based on sales/performance metrics | Discretionary or target-based |
| Payment frequency | Monthly or per-sale | Quarterly or annually (usually) |
| Predictability | Variable — depends on sales | More predictable — set targets |
Why Commissions Create Tax Planning Challenges
Bonuses are usually received once or twice per year. Commissions may come every pay period, with amounts that vary wildly. This creates three problems:
Problem 1: Inconsistent Withholding
When commissions are on the same paycheck as regular pay, the aggregate method may push you into a much higher withholding bracket for that period:
| Pay Period | Regular Pay | Commission | Total | Withholding Applied |
|---|---|---|---|---|
| January | $4,000 | $2,000 | $6,000 | Based on $156,000 annualized |
| February | $4,000 | $0 | $4,000 | Based on $104,000 annualized |
| March | $4,000 | $8,000 | $12,000 | Based on $312,000 annualized |
March's paycheck gets heavy withholding because the system annualizes $12,000 × 26 = $312,000 — even though your actual annual income is $90,000.
Problem 2: Quarterly Tax Obligation
High commission earners (especially 1099 independent contractors) may need to make quarterly estimated tax payments if their commission isn't subject to withholding.
Problem 3: Big Year Variations
A salesperson who earns $50,000 in commissions one year and $120,000 the next faces dramatically different tax brackets, making planning difficult.
Effective Tax Rate Comparison
On $30,000 in supplemental income (same total, different type):
| Tax Component | Annual Bonus of $30,000 | Monthly Commissions Totaling $30,000 |
|---|---|---|
| Federal income tax (actual) | Same | Same |
| Federal withholding (timing) | One lump — 22% flat | Spread across months — may vary |
| FICA | $2,295 | $2,295 |
| Net tax liability | Identical | Identical |
| Cash flow | One big hit | Smaller hits throughout year |
At the end of the year, the total tax is the same. The difference is in timing and cash flow.
W-2 Commission vs 1099 Commission
| Feature | W-2 Commission (Employee) | 1099 Commission (Independent Contractor) |
|---|---|---|
| Employer withholds income tax | Yes | No |
| Employer pays half of FICA | Yes | No |
| Self-employment tax | No (just employee share) | Yes (full 15.3%) |
| Quarterly payments required | No (employer withholds) | Yes |
| Deductions available | Limited | Full business deductions |
| Total tax burden | Lower | Higher (unless significant deductions) |
1099 commission earners pay roughly 7.65% more in FICA taxes (the employer's share) but can deduct business expenses that W-2 employees cannot.
For the full guide to bonus taxation, see How Bonuses Are Taxed in 2026. For understanding the 22% withholding, read Bonus Tax Rate 22%. And for strategies to reduce the tax impact, check How to Reduce Tax on Your Bonus.
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