[psaa61573]

Hello Everyone,

I'm extremely confused as to what I should do. I started working for a precious metal refinery as a sales representative. I am paid weekly for my salary which is fine. Any commissions I generate are paid out on a company check (not through our payroll) and at the end of the year I'll get a 1099. I've never had to do this before and I have no clue what I should "bank" for taxes that I'll end up having to pay when I file next year. Personally I don't understand why he doesn't include my commissions in his payroll. When it's done that way the employer is required to pay a portion of the FICA and Medicare taxes. Whereas with a 1099 it will ALL be up to me. The way I'm working it right now is for every $1000 I cash out in commissions, I'm putting $300 aside for taxes but I don't know if that will be enough nor do I know how to figure out what I should put aside. Any advice??

[psaa61573]

Also I just researched and found that employers are not allowed to payout commissions this way if the person is in fact an employee of the company. Is this correct?

[rootje]

I can't help you with your 2nd question, but I recently dug through the tax rules myself to
figure out how to report income from a 1099. Here's how it works:

you pay normal income tax on your income. Of course the percentage depends on which
bracket you're in.

In addition, you will pay 15.3% `self employment' tax. You should see this as the FICA tax
you would pay as an employee + the part that your employer would normally pay. You are
your own employer now, so you pay this part as well. (Hence the 15.3% and not the usual
lower rate for employees.)

Furthermore, half of this self employment tax is deductible for your income tax.

So, for every 1000 you should bank 153 for FICA and then your normal income tax. You only
pay income tax on (1000 - 0.5*153) = 923.50. With a tax rate of say 28% you would pay
258 in income tax. Your `total tax' would be 258 + 153 = 411 dollars.

[MukatA]

1099-misc income: You will report your income and expenses on schedule C or C-EZ (Form 1040). Then you put net income (or loss) on line 12 of Form 1040. This income is subject to SE tax at 15.3% (this is shown on line 57 of Form 1040). Half of SE tax is deductible on line 27 of Form 1040. Read: Your U.S. Tax Return: Tax Filing by Self Employed Sole Proprietor or Independent Contractor

You may also like to read this W2 vs 1099-misc: Your U.S. Tax Return: W2 vs 1099-Misc: Employee vs Independent Contractor.