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Are Commissions Taxed More? Not Exactly.
You may have heard people say, “My commissions are taxed at a higher rate!” But the truth is, they’re not. And understanding why can help you avoid surprises come tax season.
Let’s walk through what’s really going on, using a common example.
Meet Sally, the Superstar Sales Rep
Sally (a hypothetical example here) works hard in sales. Her compensation is split: half salary, half commission. She crushes her quota and finally gets her commission bonus. When payday hits, she checks her bank account and sees more money than expected. Sweet!
But months later, tax season rolls around. Her accountant breaks the news: she owes a big tax bill. Sally’s confused. How did she owe a tax bill? She starts to believe her commissions are taxed more. After all, such a huge payout might warrant a large tax bill. Right?
Not exactly. The problem wasn’t the tax rate. It was how much was withheld.
Let’s break this down.
When you receive a regular paycheck from a salary, your employer withholds taxes based on your earnings and the IRS tax tables. That withholding is designed to match your actual tax liability more closely over the year.
But commissions and other irregular income, like bonuses, awards, or equity compensation are considered “supplemental wages.” These don’t come as frequently as a normal paycheck.
These types of income aren’t taxed differently by the IRS, but they are often withheld differently.
In 2025, the federal flat withholding rate for most supplemental wages (like commissions) is:
These are just default withholding rates, not your actual tax rates.
For example, let’s say Sally earns:
Here’s how the employer typically withholds:
On $500,000 of total income, Sally’s marginal federal bracket reaches 35%.
The total federal tax owed (before deductions or credits) would be $145,375 (calculated across the progressive tax brackets)
Even though commissions are not taxed at a higher rate, the flat 22% withholding is often less than the true marginal tax rate (which, for Sally, is 35%).
That’s why, even though Sally’s paycheck looked great during the year, she gets hit with a big tax bill when everything is reconciled at filing time!
The Bottom Line
Commissions, bonuses, and other non-regular forms of pay aren’t taxed differently. They’re just withheld differently. And that can create confusion when you suddenly owe more than expected.
If your income includes a lot of commissions or bonuses, it's worth planning ahead. You might want to:
Because understanding the difference between how something is withheld and how it’s taxed can save you a lot of headaches and a big check at tax time.
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