Report your employees’ commission income, in most cases, in box 1 on a W-2 form. Treat the commissions like wages when you withhold and pay taxes for the business. Employers must pay regular employment taxes on the wages, such as Social Security and Medicare taxes.
You may choose to combine an employee’s salary and their commission into a single payment if they earn both. Otherwise, identify an employee’s commission payment as separate from their regular wages. Know the withholding methods depending on which course of action you take:
- Withholding a flat rate of 22% from an employee’s commission payment
- Combining regular and supplemental wages before you use the total amount to withhold the income tax, with the IRS Publication 15T brackets
People Also Ask
- Can I file a W-2 form for payments made to a commissioned salesperson? – Sometimes. The form that you file is dictated by how you classified a worker when you hired them.
- Can payroll software handle different types of compensation? – Yes, the best payroll software can handle compensation that ranges from commissions to bonuses. Some useful employer tools will include software with commission tracking, calculating, and managing.
We handle income form generation and reporting programmatically with our W-2/1099 software and optional add-on Software Generated Forms module. Download our free 1099-etc Demo software today to learn how our base program and six optional modules complement each other for your efficient tax and payroll preparation.
This article was updated on Dec. 18, 2025 to keep its information as fresh as possible. We update this article every six months, before and after tax season, to keep it current with any changes.