Salary Tax

• Your salary is taxed as regular income. Income taxes are levied as a percentage of the income, and the rate goes up the more you make. In addition to paying income tax, your salary also falls subject to FICA, which is the process of withholding money to pay in to the Social Security and Medicare systems. Some states and localities also add additional taxes and charges against your salary, including, but not limited to, state income tax.
  
  

Commission Tax for Salaried Employees

• If you are a salaried employee who also earns commissions, such as a salesperson with a base plus incentive package, your commissions are taxed in the exact same manner as your salary. Your employer will subtract income taxes, FICA and any state taxes. Because your commission is "extra" income, you may pay slightly higher income taxes on it than you do on your salary because tax rates go up the more you make.
  
  

Commission Tax for Contractors

• If you are an independent contractor earning commissions, like most real estate agents, you typically receive a check for the full amount of your commissions from your broker or employer. You are then responsible for paying your own taxes. Like anyone else, you will pay income tax, but you will also pay self-employment taxes, which are equal to twice the FICA tax. On the other hand, you can also directly subtract any expenses that you incurred in earning the commission, reducing your income subject to income and self employment taxes.
  
  

Employer's Perspective

• Employers also pay taxes when they pay you salary or commission as an employee. They make a FICA contribution that is equivalent to yours, as well as paying both taxes and fees into various other funds and programs. Although some commission checks get excluded from additional employment taxes when you are an employee, if you are a contractor, the employer does not have to pay any taxes or do any withholding. Because of this, many business people like to employ commission-based workers as contractors.