If you're salary puts you in one tax bracket and your commission is paid out in a large sum at the end or beginning(in my case) of year, but doesn't take you out of your original tax bracket, why did i just get raped on my commission check, pulling over 40% out when I easily am still in the 25% bracket? Please help me understand this BS...
When commissions are paid out, it is considered non-regular compensation, just like bonuses are. So rather than withholding based on the withholding tables, your employer is required to withhold based on statutory rates. For federal, this is 26%. For state, the percentage is based on the state. In addition, social security (if you haven't maxed out yet) and medicare is withheld as well. While you will see less in your check, if the withholding is too much, you will get it back when you file your return. Note that there are two sides to this coin as well. If your income is really high (in the top tax brackets), and the bonus or commission check is large as well, the same statutory rate is still withheld. However, since the rate withheld is lower than your marginal tax rate, you would run into a situation where there isn't enough withheld and you would owe tax at the end of the year.
File your taxes online and claim your tax refunds. Tax Prep Services online with some cool deals are listed here http://www.redtagdeals.com/tax_preparati...
|
