This is for small employers who pay sales staff a commission, on top of a salary or hourly wage or instead of one. It covers how to withhold federal tax on a commission check, what the federal wage rules require when commissions are most of the pay, and how the commission shows on the pay stub. State wage laws can add written commission agreements and payment deadlines, so check your state too.
Is commission pay taxed differently?
No. The tax owed is the same as on salary; only the withholding method can differ. IRS Publication 15 lists commissions among supplemental wages, together with bonuses, back pay and severance, and gives employers two ways to withhold federal income tax on them.
| How you pay it | Federal income tax withholding |
|---|---|
| Added to regular wages, amounts not shown separately | Withhold on the total as one regular paycheck |
| Paid separately, or shown as its own amount | Flat 22%, or the aggregate method |
| Supplemental wages above $1 million in the calendar year | 37% on the excess, whatever the Form W-4 says |
| Every method | Social Security, Medicare and FUTA also apply |
The flat 22% is only an option if you withheld income tax from the employee's regular wages this calendar year or last. If you didn't, Publication 15 says to use the aggregate method.
Flat 22% or aggregate: a worked example
Say a salesperson earns $2,000 every two weeks and you pay a $3,000 commission in a separate check.
- Flat rate: 22% of $3,000 is $660 of federal income tax. Done.
- Aggregate method: add the $3,000 to the $2,000 from the most recent regular payday, work out withholding on $5,000 as if it were one biweekly paycheck using the Publication 15-T tables, then subtract the tax already withheld from the $2,000. The difference comes out of the commission.
- Either way, withhold Social Security at 6.2% ($186.00) and Medicare at 1.45% ($43.50), and match both as the employer.
The flat rate is simpler and easy to explain to the employee. The aggregate method follows the employee's Form W-4 and the regular withholding tables, so the result depends on their pay and filing details. Neither method changes the tax due for the year: the employee settles that on their return.
Social Security has a 2026 wage base of $184,500, so it stops once an employee's wages for the year pass that figure. Medicare has no cap, and you withhold an extra 0.9% Additional Medicare Tax on wages above $200,000 in the year.
The free bonus tax calculator does this sum both ways: it treats any supplemental wage, commissions included, at the flat 22% or by the aggregate method, with Social Security and Medicare on the same payment.
Does commission count toward overtime?
Yes, for non-exempt employees. Federal rules (29 CFR 778.117) say commissions are payments for hours worked and must be included in the regular rate, however and whenever they are paid. Overtime is then time and a half of that regular rate for hours over 40 in the workweek.
Example: an hourly employee earns $15 an hour, works 45 hours and earns a $150 commission that week. Straight-time pay is $675 plus $150, so $825. The regular rate is $825 ÷ 45 = $18.33. Each of the 5 overtime hours has already been paid at straight time, so the overtime premium is half the regular rate: 5 × $9.17 = $45.83. Total pay for the week is $870.83.
If the commission is worked out monthly or paid later, you still owe the extra overtime once it is known; the Department of Labor says delay doesn't excuse leaving it out of the regular rate.
Can you pay commission only?
Yes, but the federal minimum wage still applies to most employees. The Fair Labor Standards Act requires at least $7.25 an hour for all hours worked in each workweek (higher where your state sets more). If a commission-only employee's commissions for the week come to less than that, you make up the difference.
- Outside sales employees are exempt from both minimum wage and overtime when their primary duty is making sales and they are customarily and regularly away from your place of business. There is no salary test for this exemption (DOL Fact Sheet #17F).
- Retail and service establishments can use the section 7(i) overtime exemption for commissioned staff when the regular rate is more than one and a half times the minimum wage and more than half the employee's pay over a representative period is commission (DOL Fact Sheet #20). Minimum wage still applies.
- A draw against commission is an advance paid each period and recovered from later commissions. It still has to meet the minimum wage for the hours worked.
How commission shows on the pay stub and W-2
Put the commission on its own earnings line, separate from salary or hourly pay, with the current amount and the year-to-date total. If you used the flat 22%, the federal income tax line for that pay date reflects it. At year end, commissions are part of wages in boxes 1, 3 and 5 of the W-2, like any other pay.
Keep the commission statement that shows how you reached the figure: sales, rate and any chargebacks. It is the record that backs up the paycheck if the employee asks.
Where PayDocs fits
PayDocs makes the pay stub from your payroll figures. The generator has a one-tap "Commission" earnings line, so the commission sits on its own row next to salary or hourly pay, with year-to-date totals. PayDocs works out federal income tax, Social Security, Medicare and supported state taxes for 2026 pay dates (see what we calculate). Every line stays editable, so the stub matches what you actually withheld. You preview free and pay per stub.
This is general information about US federal rules as of 8 October 2026, not tax or legal advice. State rules on commissions and wage payment add to it; check your state's labor and revenue departments.
Questions
Is commission pay taxed differently?
Not in the end. Commissions are wages and taxed like salary on the employee's return. Only the federal withholding can differ: paid separately, you can withhold a flat 22% or use the aggregate method.
Does commission count toward overtime?
Yes, for non-exempt employees. Federal rules require commissions to be included in the regular rate, so overtime is worked out on salary or hourly pay plus commission, divided by hours worked.
Can you pay commission only?
Yes, but most employees must still get at least the federal minimum wage of $7.25 an hour for all hours worked each week, or a higher state minimum. Outside sales employees are exempt from that rule.
Are Social Security and Medicare taken from commissions?
Yes. Whatever method you use for income tax, commissions are subject to Social Security (6.2% up to the 2026 wage base of $184,500), Medicare (1.45%) and federal unemployment tax.
How does commission show on the W-2?
As part of wages. Commissions go into boxes 1, 3 and 5 with the employee's other pay; there is no separate W-2 box for them.
Sources
- IRS: Publication 15 (2026), Employer's Tax Guide, section 7 Supplemental wages
- IRS: Topic no. 751, Social Security and Medicare withholding rates
- eCFR: 29 CFR 778.117, Commission payments, general
- US Department of Labor: Fact Sheet #56A, Overview of the regular rate of pay under the FLSA
- US Department of Labor: Fact Sheet #17F, Exemption for outside sales employees
- US Department of Labor: Fact Sheet #20, Employees paid commissions by retail establishments (section 7(i))
- US Department of Labor: Minimum wage
Sources checked October 8, 2026. This article explains how pay documents work; it is not tax or legal advice.
