- The Texas state constitution prohibits income tax. Accordingly, Texas workers enjoy keeping a larger portion of their income -- including commissions -- than workers in most other states. However, Texas laws do not supersede federal regulations. Commissions in Texas are subject to federal income tax and are based on a person's total annual earnings as well as marital status, assets and permissible deductions.
- Texas workers are subject to payroll withholding under the Federal Insurance Contribution Act (FICA). Accordingly, in 2011, the federal government claims 4.6 percent of an employee's earnings to fund Medicare and Social Security. Employees also have the option of additional withholding for federal income tax purposes. These withheld earnings are reported at the end of each year on an Internal Revenue Service Form W-2, and they may make it possible for workers to owe no money to the IRS at tax time. Commissions are subject to FICA and federal withholding.
- Although retail salespeople in Texas don't pay state taxes, employers do. Texas assesses payroll taxes to fund its unemployment compensation program. In fact, it taxes the first $9,000 of an employee's earnings -- which can include sales commissions. New businesses pay 2.6 percent toward unemployment, while seasoned businesses with a record of few or no unemployment claims receive discounts.
- Texas receives a large part of its tax revenue from state sales tax. Workers don't pay taxes on commissions earned, but instead may pay taxes on their extra earnings when they spend that money. Additionally, commissions increase salespeople's total earnings and can push them into higher federal tax brackets.
previous post
next post