How do you calculate what the withholding should be on quarterly commission?i.e. – 3 month earning?

Question

How do you calculate what the withholding should be on quarterly commission?
i.e. – Commission entered as a 3 month earning?

I don't have a 1099. I am a fulltime employee that receives salary & quarterly commission. I just found out that my bookkeeper should be entering my commission as a quarterly earning, but he is not, he is entering it as a monthly (&sometimes weekly earning). I have heard that doing this raises my tax rate and is incorrect since this is earnings accumulated over a 3 month period. So now I am trying to find out how to calculate the proper amount myself, so I can make sure that he is entering it correctly.

Answer 1

Irregular payments such as bonuses and quarterly commissons are withheld at a statutory rate of 25%. You can ask them to withold more but not all employers will.

Answer 2

If your employer gives you a 1099misc with the compensation listed in box 7, then you report it on Schedule C. You can deduct necessary expenses that earned you that commission. Things like postage, advertising, office expenses, supplies, gifts, etc.. whatever it took to make that commission. The remaining amount would be taxed for self-employment taxes (soc. sec. and med.) at 15%. Also, depending on your income bracket, it's taxed federally at 10-28% and state at roughly 5%. When you receive your commission check, it's best to make an estimated payment, an amount equal to, say, 30% to federal and 5% to state. If you overestimated, then you won't pay additional penalties for underestimating with the federal or state, and should get a refund. If you underestimated, then you would pay penalties. If your employer adds it to your w-2 and doesn't hold out any taxes, then you are still responsible for that 10-28% tax and additional penalties for not having enough taxes taken out.

Answer 3

I have been a tax accountant for 27 years. The bookkeeper should be using the annual tables to calculate the proper amount of withholding on your commission. However, please take note of the fact that IRS regulations do not require your employer to use the annual tables. So, unless you can convince your employer to do it correctly, you'll just have to wait until tax time to get your money back.