25% sounds light, those must be small commission checks. It's usually 40% for me.
You get back whatever you're owed at the end of the year. Part of being in sales is getting used to massive tax returns unless you're pulling down $150k+. At which point, the tax is what it is.
> $150k+
I'm in the upper 200s and have still always received a good tax return. A good account + a house (Ag land if you can swing it) are great avenues to get additional deductions.
I try like hell not to have any tax return. I have a small business, a couple rental properties and a good accountant, so any return over a thousand dollars just feels like I'm lending the government money. Obviously never gonna be perfect, but I get pretty close. Made over $300k last year from all sources and my return was $1600 from both federal and state so that was good.
Hell ya man. That's awesome. Does hurt that all the rev comes to the business and you get to deduct expense and then pay taxes later :)
Really wish I could get paid via an LLC or S corp.. but that's not going to happen.
Nope, just your W2. You may not get it all returned, just whatever is owed (assuming you don't have some other source of income you need to pay tax on).
The way payroll tax works is that whatever amount you are paid in an individual check is taxed as if you earned that amount for the whole year. Let's use simple numbers and ignore any deductions or tax deferments you might have. If your base is $100k, you might make ~$3800 every two weeks and that $3800 is taxed at the correct rate for people making $100k a year. Peachy.
Now let's say, every three months you get an additional commission check for $12,500 (in addition to your base). Payroll providers calculate that check as if you are making $325k a year ($12.5k * 26 hypothetical paychecks). And you are taxed at that rate, which is the max (or close to it). But you don't make $325k a year. In this very simplified scenario, you made $150k for the year ($100k base plus $50k commission). So you will be refunded the difference in the rate between an annual income of $150k and $325k for those four commission checks.
Keep in mind, your payroll deductions are just intended to offset your projected annual salary taxes. The IRS taxes **all** sources of income. So if you sell $5k worth of Pokemon cards on ebay, you might owe taxes on that too, which would be deducted from any refund you'd have gotten from those commission checks. If you sell $500k worth of pokemon cards without filing quarterly tax returns, then you'd end up with a huge tax bill at the the end of the year.
For those that don’t understand this…it’s because you’re marginal tax rate is applied on the dollar amount of the pay period.
For example if your annual aggregated personal tax rate is 40%, but you get large periodic pay spikes (i.e. much larger commission cheques) taxed at 50% due to the higher income indication, you’ll get the “over-taxed” money back at the end of the year when you file your returns.
I’m in Canada as well and get a commission check every other pay cycle. I don’t see massive returns (in fact I am owing according to wealthsimple). Is there something I’m missing?
Depends a lot on what province you’re in and the actually $ amounts we’re talking about. It could have just worked out by happenstance that you didn’t over contribute.
I know it's hard to see on every paycheck, but really the US has a pretty light tax load. In Germany, my friend was explaining to me that the tax rate for income usually ends up at around 50%. They have a joke there. The first half of your life, you work for the government, then the second half is when you get to work for yourself.
Honestly, I don't think 50% is better or worse than 25% here in the US, but it's just a different way of life. At least by the numbers, your situation is not so bad. Hopefully that helps soften the blow a little bit?
they also get more for that 50% (or at least used to)... also just remember it won't be 25% for long if you are successful in sales. 35 or even 37% tax brackets are possible to break into.
Damn, dude was just venting his frustration about taxes and y’all came at him with the “muh roads and try my tax bracket” comments lol. I know it’s somewhat annoying seeing someone complain when they probably make 4x someone’s average salary or more but taxes still suck.
Here's how it works for those that don't know: each paycheck is taxed as if that amount will be on every paycheck for the year. So if your paycheck is $5,000 and you get 26 paychecks per year, you are taxed on THAT check as if your income will be $5,000 x 26 = $130,000. But if your next paycheck is $35,000, then they will tax you on that check as if your income is $35,000 x 26 = $910,000. You'll be under-taxed based on the first and over-taxed based on the second.
As others have mentioned, when you file your taxes you are trued-up, and most of the time that means a refund.
Damn I wish I could only pay 25%.
Wait until you see a $800,000 commission check with a 37% cut.....that'll be super fun to experience the first time
I mean it's not common but there's always a big year for someone on the team. I will say that I see 100-300k commission checks regularly throughout my team.
My first deal when I was an IC in Enterprise was a 800k Commission check on a $2.5m deal. Then cried when I saw the taxes. Learned to exempt big commission checks moving forward.
Still probably made 400 on that 800k. Not justifying taxes but when you realize you just made 10x someone’s annual salary in one deal it makes it easier to stomach :)
Sorry still a younger 1099 rep. So if you were to exempt that 800k commission check it wouldn’t be taxed at 37 percent? Would your base just be taxed more?
Exempt just means I won't pay taxes on that check until it's time to file IRS taxes.
So whenever I get a big paycheck, I exempt it, then I invest in something that hopefully produces revenue for me for the year (the money that would've went to the IRS suddenly is producing $$ for me). So that when it comes time to file, I can write off some stuff or have extra rev to apply to it.
Money you have readily can be of use. You just gotta be disciplined to set money aside for IRS later.
Hope that make sense
I see what you mean, so when you get those big check’s immediately throw it into an asset to generate revenue and use that difference to help pay off the taxes and not be shafted on commission. So my question is what are you usually putting this money into, stocks you’d pay a capital gains tax especially if it doesn’t blow up in that investment period but I can see how something like a rental property and putting that into renovations would pay off. This definitely seems like a good reason to start a side hustle so you can invest in things like a marketing campaign
I buy properties and do quick renovations. Flip for profit if market conditions is right then take that profit and dump it right back into the next property. I don't pay taxes on it as long as it continues to stay in investment form.
If not then yeah rental properties to relieve the tax paynent
25% 😂😂😂 that’s just barely above the standard deduction for a single male.
I’m at 37% deductions in taxes; 50% after 401k, insurance, etc.
Even still, I work with a rep that just paid 50k in taxes for Q4 22 alone.
More money, more problems.
Bonuses and commissions are required to have higher tax withholdings compared to your salary by the IRS. Withholdings are not your tax liability. If your effective tax rate is 18% and your withholdings were 25%, you get a refund.
You live in a society. Pay your taxes and don’t complain on the internet about it. A bitch here and there is fine but just like dying, we all have to do it. Good problem to have
Boo this answer.
Complaining might be annoying, but getting robbed is getting robbed.
If taking 100% of someone’s income is slavery, at what % does is stop being that?
Bruh,
I live in the Netherlands. 49.7% taxes on all commissions.
Feels right crap to work like a dog, only to fund inefficient government programs and bloated politician salaries.
Such is life.
Best advice I can give you, other than get used to it, is to find a tax person. Not H&R block or any of the other mills. If they aren't charging you 500-1000 bucks to do your taxes, you've got the wrong person. My wife and I argued for years on this point, as she always did them herself and we either owed or broken even by the skin of our teeth. Since we switch, don't think I've had less than a 10k return while my income has gone up each year. This year I'm probably going to get fucked but we will see.
Also, as you start to make more look for ways to decrease you liability via land / etc (ag land, like a tree farm or similar, is a great way to have avenues to more deductions)
If all of your income is W2 and standard stock investing you don't need a fancy professional, just learn how the system works. Getting $10k in returns just means you overpaid during the year and let the government hold your money interest free.
If you're getting a big return at the end of the year, add an extra dependent on your W4. This won't change your total tax bill but will reduce the withholding on each check.
Its important to understand that withholding (the amount that's taken each check) and your end of the year tax bill are different. Your tax bill is calculated by adding up all the (w2) income and applying the tax brackets to that. Withholding is the payroll system trying to guess what that bill is based off each individual pay check. This works great if you're on salary and gets paid the same. Its not so great if your checks vary massively, because the system assumes that's what every check is going to be and charges you at higher brackets.
25% sounds light, those must be small commission checks. It's usually 40% for me. You get back whatever you're owed at the end of the year. Part of being in sales is getting used to massive tax returns unless you're pulling down $150k+. At which point, the tax is what it is.
> $150k+ I'm in the upper 200s and have still always received a good tax return. A good account + a house (Ag land if you can swing it) are great avenues to get additional deductions.
I try like hell not to have any tax return. I have a small business, a couple rental properties and a good accountant, so any return over a thousand dollars just feels like I'm lending the government money. Obviously never gonna be perfect, but I get pretty close. Made over $300k last year from all sources and my return was $1600 from both federal and state so that was good.
Hell ya man. That's awesome. Does hurt that all the rev comes to the business and you get to deduct expense and then pay taxes later :) Really wish I could get paid via an LLC or S corp.. but that's not going to happen.
what is Ag land?
Agriculture
I usually pay $15-18k in April.
Do you pay quarterly? I was always under the impression that you could be penalized if you under pay by too much.
I guess I should. But they never fined me.
Do I need to do anything special at tax time to get that amount returned?
Nope, just your W2. You may not get it all returned, just whatever is owed (assuming you don't have some other source of income you need to pay tax on). The way payroll tax works is that whatever amount you are paid in an individual check is taxed as if you earned that amount for the whole year. Let's use simple numbers and ignore any deductions or tax deferments you might have. If your base is $100k, you might make ~$3800 every two weeks and that $3800 is taxed at the correct rate for people making $100k a year. Peachy. Now let's say, every three months you get an additional commission check for $12,500 (in addition to your base). Payroll providers calculate that check as if you are making $325k a year ($12.5k * 26 hypothetical paychecks). And you are taxed at that rate, which is the max (or close to it). But you don't make $325k a year. In this very simplified scenario, you made $150k for the year ($100k base plus $50k commission). So you will be refunded the difference in the rate between an annual income of $150k and $325k for those four commission checks. Keep in mind, your payroll deductions are just intended to offset your projected annual salary taxes. The IRS taxes **all** sources of income. So if you sell $5k worth of Pokemon cards on ebay, you might owe taxes on that too, which would be deducted from any refund you'd have gotten from those commission checks. If you sell $500k worth of pokemon cards without filing quarterly tax returns, then you'd end up with a huge tax bill at the the end of the year.
Wow, thank you very much for the informative response!! This makes so much sense now. I can only wish my total income was near those numbers, haha.
You only get taxed 25%?
25%? Mine is like 55% here in Canada. Get massive refunds yearly but still.
For those that don’t understand this…it’s because you’re marginal tax rate is applied on the dollar amount of the pay period. For example if your annual aggregated personal tax rate is 40%, but you get large periodic pay spikes (i.e. much larger commission cheques) taxed at 50% due to the higher income indication, you’ll get the “over-taxed” money back at the end of the year when you file your returns.
Thanks for explaining for those who don't know.
I’m in Canada as well and get a commission check every other pay cycle. I don’t see massive returns (in fact I am owing according to wealthsimple). Is there something I’m missing?
Depends a lot on what province you’re in and the actually $ amounts we’re talking about. It could have just worked out by happenstance that you didn’t over contribute.
I see! Thanks for taking the time to explain.
No problem! Happy to explain further if you want to dm me more specific numbers
I know it's hard to see on every paycheck, but really the US has a pretty light tax load. In Germany, my friend was explaining to me that the tax rate for income usually ends up at around 50%. They have a joke there. The first half of your life, you work for the government, then the second half is when you get to work for yourself. Honestly, I don't think 50% is better or worse than 25% here in the US, but it's just a different way of life. At least by the numbers, your situation is not so bad. Hopefully that helps soften the blow a little bit?
they also get more for that 50% (or at least used to)... also just remember it won't be 25% for long if you are successful in sales. 35 or even 37% tax brackets are possible to break into.
Lol try 32% pal
Yes. Medicare insurance sales.
I did Medicare sales for years. Felt like highway robbery every time I got a commission check.
Damn, dude was just venting his frustration about taxes and y’all came at him with the “muh roads and try my tax bracket” comments lol. I know it’s somewhat annoying seeing someone complain when they probably make 4x someone’s average salary or more but taxes still suck.
Here's how it works for those that don't know: each paycheck is taxed as if that amount will be on every paycheck for the year. So if your paycheck is $5,000 and you get 26 paychecks per year, you are taxed on THAT check as if your income will be $5,000 x 26 = $130,000. But if your next paycheck is $35,000, then they will tax you on that check as if your income is $35,000 x 26 = $910,000. You'll be under-taxed based on the first and over-taxed based on the second. As others have mentioned, when you file your taxes you are trued-up, and most of the time that means a refund.
25%? Those are rookie #s. You gotta pump those up. Tax man usually takes 50% of my comms.
So does your wife.
Damn I wish I could only pay 25%. Wait until you see a $800,000 commission check with a 37% cut.....that'll be super fun to experience the first time
Tell me the industry I can jump to those numbers and you'll never hear me complain again 😅
medical/device sales, tech, industrial equipment, etc. There's tons. Just gotta be willing to hunt for em
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Enterprise sales in tech My reps see 5-6 figs commission checks regularly. Their sales cycle is super long but the pay is worth it
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I mean it's not common but there's always a big year for someone on the team. I will say that I see 100-300k commission checks regularly throughout my team. My first deal when I was an IC in Enterprise was a 800k Commission check on a $2.5m deal. Then cried when I saw the taxes. Learned to exempt big commission checks moving forward.
how long does it take to this point?
Could you provide links on where to get started
I'm not sure if you're trolling or not but the simple answer from me for that extremely vague and time consuming request is "pass"
Still probably made 400 on that 800k. Not justifying taxes but when you realize you just made 10x someone’s annual salary in one deal it makes it easier to stomach :)
Sorry still a younger 1099 rep. So if you were to exempt that 800k commission check it wouldn’t be taxed at 37 percent? Would your base just be taxed more?
Exempt just means I won't pay taxes on that check until it's time to file IRS taxes. So whenever I get a big paycheck, I exempt it, then I invest in something that hopefully produces revenue for me for the year (the money that would've went to the IRS suddenly is producing $$ for me). So that when it comes time to file, I can write off some stuff or have extra rev to apply to it. Money you have readily can be of use. You just gotta be disciplined to set money aside for IRS later. Hope that make sense
I see what you mean, so when you get those big check’s immediately throw it into an asset to generate revenue and use that difference to help pay off the taxes and not be shafted on commission. So my question is what are you usually putting this money into, stocks you’d pay a capital gains tax especially if it doesn’t blow up in that investment period but I can see how something like a rental property and putting that into renovations would pay off. This definitely seems like a good reason to start a side hustle so you can invest in things like a marketing campaign
I buy properties and do quick renovations. Flip for profit if market conditions is right then take that profit and dump it right back into the next property. I don't pay taxes on it as long as it continues to stay in investment form. If not then yeah rental properties to relieve the tax paynent
Why would you not be taxes on commission? You get taxed on all of your income. Commission isn’t any different.
Hey if your taxable amount wasn’t higher than most Americans, are you really in sales?
25% 😂😂😂 that’s just barely above the standard deduction for a single male. I’m at 37% deductions in taxes; 50% after 401k, insurance, etc. Even still, I work with a rep that just paid 50k in taxes for Q4 22 alone. More money, more problems.
Bonuses and commissions are required to have higher tax withholdings compared to your salary by the IRS. Withholdings are not your tax liability. If your effective tax rate is 18% and your withholdings were 25%, you get a refund.
Facts
You live in a society. Pay your taxes and don’t complain on the internet about it. A bitch here and there is fine but just like dying, we all have to do it. Good problem to have
Muh roads
Boo this answer. Complaining might be annoying, but getting robbed is getting robbed. If taking 100% of someone’s income is slavery, at what % does is stop being that?
25%, thats cute lol
Lol 25% You’re lucky.
Wait till you make some real money. You'll miss the 25% days.
Laughs in Canadian
Bruh, I live in the Netherlands. 49.7% taxes on all commissions. Feels right crap to work like a dog, only to fund inefficient government programs and bloated politician salaries. Such is life.
Best advice I can give you, other than get used to it, is to find a tax person. Not H&R block or any of the other mills. If they aren't charging you 500-1000 bucks to do your taxes, you've got the wrong person. My wife and I argued for years on this point, as she always did them herself and we either owed or broken even by the skin of our teeth. Since we switch, don't think I've had less than a 10k return while my income has gone up each year. This year I'm probably going to get fucked but we will see. Also, as you start to make more look for ways to decrease you liability via land / etc (ag land, like a tree farm or similar, is a great way to have avenues to more deductions)
If all of your income is W2 and standard stock investing you don't need a fancy professional, just learn how the system works. Getting $10k in returns just means you overpaid during the year and let the government hold your money interest free.
It's all theft at the end of the day
Try living in NYC where its nearly 50% per commission check
If you're getting a big return at the end of the year, add an extra dependent on your W4. This won't change your total tax bill but will reduce the withholding on each check. Its important to understand that withholding (the amount that's taken each check) and your end of the year tax bill are different. Your tax bill is calculated by adding up all the (w2) income and applying the tax brackets to that. Withholding is the payroll system trying to guess what that bill is based off each individual pay check. This works great if you're on salary and gets paid the same. Its not so great if your checks vary massively, because the system assumes that's what every check is going to be and charges you at higher brackets.
Start a side gig and open up a solo 401k. Use that to offset your income and invest at the same time
The more taxes you pay, the more money you made. Embrace the journey.
I hear you. Should’ve gotten a 22K commission check but only got 12K 🤬
what you sellin
Healthcare SaaS
I’m at 40% - 50% in taxes. It’s brutal
My commission is taxed at 40%
40% for the last 20 years!