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. What moral hazards are present with salaried employees?

    Discover that moral hazards are a common problem facing many companies today. The good news is that there are plenty of ways ...
  2. How has the Internet impacted Value-Added Network (VAN) providers?

    Discover how the advent of the Internet has challenged the Value-Added Network, or VAN, model of distributing electronic ...
  3. Is the marginal tax rate a progressive tax?

    Learn how the marginal tax rate is a progressive tax that takes a higher percentage of income tax from high-income earners ...
  4. What's the difference between the marginal tax rate system and a flat tax?

    Find out about the difference between marginal tax rates and flat taxes. Gain insights on both systems and the arguments ...
RELATED TERMS
  1. Back Pay

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

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

    The percentage of premiums that an agent is owed for collecting ...
  4. Constructive Discharge Claim

    An insurance claim made by an employee who has quit his or her ...
  5. Separation Of Powers

    An organizational structure in which responsibilities, authorities, ...
  6. Guideline Premium And Corridor Test (GPT)

    A test used to determine whether an insurance product can be ...

You May Also Like

Related Articles
  1. Stock Analysis

    Why Should Investors Read The Annual ...

  2. Investing Basics

    How To Calculate Goodwill

  3. Investing Basics

    Analysis of Companies with high goodwill

  4. Investing Basics

    How Mergers and Acquisitions Can Affect ...

  5. Investing News

    The Economics of Hulu, Netflix, Redbox ...

Trading Center