Are you a straight up salary kind of guy or gal or do you get paid by commission checks or bonus checks? Or do you have a base salary and love it when the commission checks roll on it? Perhaps you are salary and get a bonus check every so often. Whatever your case may be, all types of checks are taxable. Organization is key to good tax return preparation. I mean of course, they are! Good Ol’ Uncle Sam!
The truth is, both commissions and bonuses checks are taxed differently than a simple salary. They are taxed in w 2s and 1099s tax forms as supplemental wages and the amount withheld is not the same.
A majority of your bonus checks will be combined with your salary to make a grand total to be reported on your W-2 form. This amount will show in Box 1 on the W-2 form. However, if bonuses are paid in property or items rather than cash or check then you can receive under $1,600 tax-free. This is only if your company has a plan that qualifies though. This is something you would have to ask your company. No matter what position you hold, even safety-related bonuses can be taxable if 10% or more of the employees are given this bonus.
Your commission pay structure is included in Box 1 of your W-2. The commission check income is to be reported on your tax return just the same. No matter how you receive your commission, you are taxed in the year it is paid to you. Therefore, if you get commission checks in advance, then you are taxed in that same year in accordance with the commission based pay laws. It is all about when payment is received on your part that are in the commission pay guidelines. Not when the work is done.
What You Really Want To Know
Now, no matter what way your employer withholds taxes on commissions or bonuses, you will notice that the more you make, the more money that is withheld. Keep in mind all that is withheld is simply an estimate of what is owed to the IRS. You might end up getting some of it back. You will have a better idea of what you owe or what kind of refund you will receive once you reach the end of the tax year and do your tax return with all of the final numbers. We are getting closer to that time of the year.
How To Avoid Paying Unnecessary Fees For Payroll Mistakes
Payroll can certainly be a challenging task that can take up a significant amount of your time. When it involves taxes, the payroll tasks can become more complicated and confusing. A high percentage of business owners, especially small business owners, who choose to handle their payroll taxes will have to pay a fee to the IRS.
If you want to avoid making mistakes that can lead to penalties and fees, you should strongly consider outsourcing your payroll services.
Difficulty Of Payroll
If you have a small or medium-sized business, you probably spend a significant amount of time on your payment services. Spending hours on top of hours doing your payroll services can end in disaster for your bottom line if they don’t correctly. Every state has their regulations and rules regarding payroll and taxes. If your business does not abide by the rules and regulations, your company will be responsible for paying any fees and penalties. The IRS may even have some involvement if this situation occurs.
Your Time Is Valuable
You want to spend time growing and improving your business, and not pulling your hair out worrying about figuring out the complications of taxes and payroll. Would you rather spend your time handling difficult administrative work or would you rather do something that can help you bring in revenue? When you outsource your payroll, you can have a chance to do the other tasks that will contribute to your business’s income.
Payroll can be complicated and confusing for anyone to figure out, especially if you do have a smaller business. It does not matter if you are looking for a simple payroll software or service that you can use for your business or if you are looking for help managing all of your employees with a human resource system, you can find a payroll service that will meet all of your needs.
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You can learn more about the common pitfalls of payroll and other payment services by following our other great posts. Or, if you want to learn how the team at CheckIssuing can help your small business outsource payroll or other payment needs, just contact us to inquire about our tax form management services.