Report income from employees’ commissions in Box 1: Wages, Tips, and Other Compensation on a Form W2. The next steps are as follows:
- Step 1: File a copy of the completed W2 form with the Social Security Administration.
- Step 2: Send a separate copy to the applicable employee so that they can manage their taxes.
- Step 3: Enter an employee’s commission as their income on Form 941.
The Internal Revenue Service requires all employers to make periodic payments of these specific taxes on the quarterly payroll tax report. Remember that how you report income from the employees’ commissions differs from reporting non-employee commissions.
Report any contractor commission payments on Form 1099-NEC. Provide the form to the relevant payee and to the IRS.
People Also Ask
- Can payroll software handle different types of compensation? – Yes, payroll software can handle commissions and bonuses, but they are issued in different ways. Do not attempt to perform any of these calculations by hand.
- What happens if you file a W2 late and how can you avoid it? – Forgetting to file a W2 form and incurring late penalties is not uncommon, but it is avoidable. Make sure to hire experienced staff for your business and equip them with high-tech, comprehensive tools.
We handle W2 form reporting and calculations programmatically with our W2/1099 Forms Filer software. Download our free 1099-etc Demo software today and learn how you can import data from a variety of sources and calculate selected fields throughout the tax season.
This article was updated on Jan. 28, 2026 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.