If an employee is paid by commission, who is responsible for withholding taxes?
The real question should be is the person an employee or independent contractor? If the person is an employee, you need to follow the employment law (in your state), but it is a good chance the Employer is responsible for withholding taxes (Federal, State, FICA, etc.,) including the employer portions of taxes, such as Social Security, Medicare, etc..
If the person is an independent contractor, then the person is responsible for taxes.
The one caution is, employers need to be very careful calling people working for them independent contractors, when they are performing pretty much employee job functions. Employment law, and I am not an attorney folks, is pretty clear on who is an employee. If a company hires a person and they are required to work regular hours, the job is pretty open ended with no clear end date, is similar to other employees and functions pretty similar to employees, reports to a manager similar to other employees, does not have any real autonomy on how to do a job or when or where, if challenged or audited, the person stands a good chance to be considered an employee. The Employer could be liable for benefits, overtime, taxes, penalties, and fines by the Department of Labor or other State or Federal agencies.
If you are an employer, it is very prudent to have your policies and procedures reviewed by an employment attorney to ensure your company is compliant with all the rules, regulations of the City, State and Federal government and common sense, but to also ensure the company is following their policies and procedures.
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