Withholding question

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have 2 children and my wife works as well. Two jobs total between the two of us. I am filling it out as accurately as I can possibly imagine - two jobs, 2 dependents ($4,000 child credit). I am having ZERO federal withholding from my base salary checks but having around 30% withheld from my commission checks. WTF? Am I retarded or is this correct? What changed with the tax code? I’ve never really had this issue before and I don’t want to owe a ton of money at the end of each year. What do I do to figure out what should be withheld so I know how much extra to tell them to withhold?

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That’s how payroll withholding charts work, unfortunately. If you’re paid twice a month, the system will take your individual paycheck, multiply it by 24, and withhold taxes according. With your salary checks it thinks you’ll make less than your standard deduction (also the check where your healthcare and other benefits are probably withheld which lower your taxable income). With your commission checks it thinks you make those 24 times a year and withholds like a maniac. It’s “dumb” - it doesn’t care what you’ve been paid or will be paid, it just calculates every check by 24.

It’s always been that way too, FYI.


You should talk with a cpa and consider using steps 4b and 4c to your advantage. For example - You could put $600,000 in step 4b and the software will deduct $600k from the 24x calculation each paycheck, resulting in no tax withholding. Then, use 4c to withhold $800 flat, which would withhold $19,200 over the course of the year and cover your projected income tax, or at least try to cover 110% of your previous year income tax.

Long story short, payroll withholding on commission checks are a shite show and always have been.

Your spouse and/or investment income must be the problem. In a basic salary, a properly completed W4 should be very much in the ballpark.

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by slackster

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This is helpful info, baw. Thank you, at least now I know more insight as to why it’s so messed up.

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Bonuses, commissions, etc.. are always taxed 25% on payroll.

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It depends on how the commission is paid within your monthly checks. I’ve dealt with the exact problem in my line of work. I used to use the IRS excel spreadsheet to dial in my withholding.

If it’s included in regular checks it can be treated as regular income. If it’s paid separately it’s considered supplemental salary and has either a flat rate or an aggregate method applied.

My commission/revenue based checks in the finance field have been treated as regular income across two firms. OP is in insurance so I’m assuming it’s the same.

It could very well be the supplemental rate in his case, but I’d be a little surprised.

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If it’s included in regular checks it can be treated as regular income

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I've been here 16 years and that isn't the case.

For the first 14 years, commissions from the 1-15th got paid the following month on first monthly paycycle (26 annual checks). Commissions from 16th to EOM paid on second monthly paycycle. All comp is included on each paycheck (it is never a special paycheck for commission). Commission withholdings have been 25% the entire time.

Today, all commissions get paid on the second monthly paycycle the following month. The company is looking to institute a draw on the first monthly paycycle to help newer employees with budgeting. Today, all commissions have a 25% withholding. The expectation is that the draw (when it starts) will not have that same withholding.

I apologize for the confusion. I figured "both ways" was getting 2 commission paychecks each month versus getting 1 commission paycheck each month (despite 26 annual paychecks total).

It isn't the paycycle that dictates the IRS required withholdings. It is the type of compensation (i.e. bonus income, commission income, etc..)

I'm not familiar with the multiplier on payroll tax.

I wasn't even able to successfully Google it.

The W4 always confused the heck out of me as well since commissions are to be considered.

We’ve changed the withholding amount a bit every year and settled on me withholding $700 extra per paycheck and we barely overshoot it and get a small refund every year.

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The withholding question by the OP is because bonus and commission income is withholding a tax at 25%

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Jesus Christ I’ve been patiently explaining why this is not necessarily gospel for two days now and you still don’t get it. It could explain the OP’s problem, but it’s not a guarantee.

Just because your employer withholds a flat 22% (not 25%), doesn’t mean all of them do. Many places roll it into regular income and withhold according to the tables every single paycheck.

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And you are wrong. The number of payperiods doesn't change midyear. So there would be no need to change the withholding percentage given inconsistent taxable income amounts on various paychecks.

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Yes, there absolutely would be.

Let’s assume you’re paid twice a month. You have taxable income of $3,000 on paycheck. The payroll system will multiply that by 24 pay periods and come up with $72k. They’ll adjust the $72k by your filing status and deductions, then come up with an adjusted annual wage amount. Whatever that number is, they’ll withhold the proper amount of taxes. Let’s assume MFJ, so they’ll deduct $29,200 for standard deduction to create a taxable income of $42,800. They’ll calculate 10% on the first $23,200 - so $2,320 - plus 12% on the remaining $19,600 - or $2,352 - for a total of $4,672. Divide that by 24 pay periods and they’ll withhold $194.67 on that paycheck - an effective rate of 6.489%. If your taxable income was $3500 on that check, they would have withheld $254.67, an effective rate of 7.28%.

They’ll repeat that process on every paycheck all year long - multiplying taxable income by 24, making deductions, figuring taxes on that amount for the year, and then dividing by 24. Many places will roll commission into those paychecks which will understandably throw them off considerably.

Again, just because your firm withholds at 22% doesn’t mean it’s standard nor is it the only way to do it.

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I guess I’ll just ask them to withhold an extra $100 or so from each base salary check just ti be safe.

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Ask your CPA.

They’re basically over withholding from commission and under withholding from base checks, so it could come out in the wash. I mentioned earlier that I used to manipulate the W4 to withhold a flat amount regardless of check size.