I saw online that you should tax commissions at 25%. Where would I put that on the Proseries return to tax it at 25%? Thank you.

[jeffmcpa2010]

If you cut and paste what you saw here, so we can read it, that will help.

Then we will be able to explain why it is incorrect.

[qbteachmt]

Also, it matters who is paying commissions to whom for what reason, and which of these is the tax return you are preparing. Perspective is important. Details matter.

[dd4vols]

Perhaps you are misinterpreting what you read.  I often have first-time self-employed individuals ask for advise on how to handle their quarterly estimates...i.e. how much to put back for taxes out of income. Depending on individual scenarios, but I often tell  them to PUT BACK about 25% (SE Tax 15% + INC TAX 10%), of each check (income), and then send that in quarterly.

[TaxGuyBill]

My mind reading skills indicate that you read a pre-2018 article, that said the EMPLOYER should WITHHOLD taxes at 25% (but starting in 2018, it was reduced to 22%).. 

The actual tax return still taxes it at their 'normal' rate, whatever that may be.

[qbteachmt]

If Bill is right: you are asking about Payroll. "Supplemental Wages" (see Pub 15) such as Bonus and Commission (non-routine additions to paychecks) fall under different withholding rules, and the employer would already have done this through the payroll process. Your taxpayer will have a W2. You enter the W2. It becomes part of the entire tax return.

If dd4vols is right: You are asking about being prepared to send in Estimated taxes. Since the business revenue contributes to the entire 1040, the concept of 25% is nice, but might not be applicable to your taxpayer. For estimates, that is based on the entire 1040 tax owed, as projected or as "safe harbor" lookback. Having children, spouse with income, investments, etc, all contribute to the final picture on the 1040. The business taxable amount mixes into the 1040.

Or, it might be a different concept, yet. Right now, everyone is mindreading.

[Debst99]

For example, if your bonus or commission is included in your regular pay, then it’s taxed according to normal federal and state withholding. If you receive it outside your regular paycheck, then it becomes supplemental and your commission is taxed at a rate of 25%.

[Debst99]

She received it outside her regular pay from XPO Logistics.  She was taxes on her regular pay but not on her commissions.

[Debst99]

The article was from April 25, 2019.

[jeffmcpa2010]

That quote is specifically referring to how much income tax an employer withholds from a commission based employee, not the actual tax rate the employee pays when preparing their income tax return.

Prepare the return like any other return - If the commission is on a W-2 just enter it like any W-2 based income.

If on a 1099-NEC - (Most of the time) they are treated as a proprietorship and the Commission and any expenses are reported on Schedule C. 

[dkh]

So client received a W2 that included commission income.  Are the federal withholdings not adequate to cover the tax liability on the return?   At this point, it doesn't matter what % the employer withheld it is a done deal.  

[Debst99]

No, the W-2 did not include the commission income, so she did not have enough withheld.  No NEC reported the commissions also.

[qbteachmt]

"If you receive it outside your regular paycheck, then it becomes supplemental and your commission is taxed at a rate of 25%"

As Bill pointed out, and in Pub 15: "Withholding on supplemental wages. P.L. 115-97 lowered the withholding rates on supplemental wages for tax years beginning after 2017 and before 2026. See section 7 for the withholding rates."

There are three ways to compute the withholding, seen in Pub 15.

There are two rates to use, if using the Flat rate, as seen in Pub 15.

22% up to $1m bonus; 37% afterwards. That is Withholding, not Tax Rate. Tax Rate is: this amount contributes to the bottom line of the 1040.

This employer made an error (pretty significant). Your client should have had the usual Payroll taxes, including FUTA, SUTA, SS, Medicare credits, and perhaps even retirement credits/deduction/matching.

[abctax55]

@Debst99 

One is "taxed" on income when the return is filed.

Withholding isn't "tax" - it is simply a prepayment of what will be owed when the return is prepared.

You are confusing the two.

And if no 1099 was issued - how do you/your client know about this income?   

I'm betting the 'bonus' IS in the W-2 amount.  

For a large company to "not" issue a F 1099, or include in the W-2 seems odd.

NMI

[TaxGuyBill]

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@Debst99 wrote:

No, the W-2 did not include the commission income,

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It sounds like you need to file Form 8919 to pay the Social Security and Medicare taxes.

[itonewbie]

@Debst99 It should be clear from the many responses you received that there is no special 25% tax rate applicable to commission or any other type of supplemental wages, whether or not it is reported on a W-2 or a 1099-NEC.

The law on this is clear.  You just need to look at §1 and you will see that no special tax rate is available to any type of compensation.  Normal progressive tax rates will, therefore, apply.

Agree with @abctax55 that it would be unusual for a large corporation to make a fundamental mistake to not report the commission.  The only times when this is a problem is when offshore payroll is involved and that's when they need help from specialists.  I'd ask for a breakdown of the W-2 wages and reconcile that against the payslips - more likely than not, it's the employee who's mistaken.

In the event your client's employer did miss out the commission, your client should approach them to have them issue a W-2C.

I wouldn't expect a 1099-NEC - that would open up a can of worms with him being both an employee and independent contractor with the same entity - he could well be earning income from two distinct roles but there's not even a hint from the discussion thus far that that may indeed be the case.