If an employee is paid by commission, who is responsible for withholding taxes?

By Denise Appleby AAA
A:

It depends. An individual who receives commissions can be treated in the same manner as an individual who receives straight salary. In that case, the employer would withhold taxes from the individual's compensation and remit the amount to the tax authorities on the individual's behalf. The withholding would be based on the elections the employee makes on Form W-4P. Alternatively, the individual can be treated as a self-employed independent contractor, who would be responsible for remitting the taxes to the tax authorities. Special rules apply to tax withholding, including requirements to avoid excise taxes that apply to underpayment of estimated taxes.

See IRS Publications 505 for more information.

As you may know, each taxpayer ultimately is responsible for paying his or her income taxes to the IRS and state tax authorities.

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS

  1. How do the C-suite members work together to make a successful company?

    Learn more about the C-suite titles and how the executive team successfully runs a large or small organization. Find out ...
  2. What are some of the arguments in favor of a value-added tax (VAT)?

    Learn the advantages of the value-added tax (VAT) over the income tax and sales tax, such as the VAT's simplicity and failure ...
  3. How is compound interest taxed?

    Understand the concept of compound interest as opposed to simple interest and learn the usual tax rate at which compound ...
  4. According to the law of supply and demand, what is the effect of an increase or decrease ...

    Find out why the imposition of income taxes by the government causes deadweight loss in the economy according to the laws ...
RELATED TERMS
  1. Value Of Risk (VOR)

    The financial benefit that a risk-taking activity will bring ...
  2. Business Judgment Rule

    A legal principle which grants directors, officers, and agents ...
  3. Freelancer

    A freelancer is an individual who earns money on a per-job or ...
  4. Back Pay

    The amount of salary and other benefits that an employee claims ...
  5. Contingent Commission

    A commission with a value dependent on an event occurring, and ...
  6. Collection Commission

    The percentage of premiums that an agent is owed for collecting ...

You May Also Like

Related Articles
  1. Investing News

    A New Corporate Governance Initiative ...

  2. Investing

    Why did Larry Page pay himself a salary ...

  3. Stock Analysis

    What Makes LinnCo Different From MLPs?

  4. Stock Analysis

    Will American Airlines Fall Back To ...

  5. Stock Analysis

    3 Things I Learned From The Container ...

Trading Center