Whether you earn straight commission on your job or receive a salary plus commission, the tax form your commission payments appear on is not determined by the type of earnings but by your employment status with your employer. There are several employee statuses – common-law employee, statutory employee, statutory nonemployee and independent contractor. Your status as an employee determines whether your commission appears on a W-2.
Common-law and statutory employees have their commission show up on their W-2 forms. Independent contractors and statuatory nonemployees can find their commission on their 1099 forms.
Commission for Common-Law Employees
If you are considered an employee by the IRS, your commission earnings are reported on a W-2. It doesn't matter if it's commission or an hourly or monthly wage, you receive a W-2 to file your income taxes. An employee is defined by the IRS as a person who performs services for an employer who has control over what services are performed and how they are performed. This is a common-law employee.
Commission for Statutory Employees
If you are a statutory employee, you also get your commission reported on a W-2 form. Statutory employees include drivers who distribute beverages – except milk – meat, vegetable, fruit or bakery products, pick up and drop off laundry, and are the employer's agent working on commission; a life insurance salesman whose primary business is selling life insurance and who sells primarily for one company; a person who does piecemeal work at home that must be returned to the employer; and a full-time traveling salesman who works for an employer and takes and turns in orders from various vendors.
Another set of requirements is that you must do the work personally, you have no substantial investment in the equipment you use, and you are consistently paid by the same payer.
Commission for Statutory Nonemployees
Statutory nonemployees are direct sellers, licensed real estate agents and some companion sitters. Employees in this category would have their commission reported on a 1099 form.
Direct sellers are those who sell goods but do not sell them from a retail location. A door-to-door salesman would be an example. Licensed real estate agents are statutory nonemployees if their income is directly related to their sales output and not on an hourly basis. Companion sitters are in this category if they are placed by a service and are not paid by that service but by the person they are companion sitting.
Commission for Independent Contractors
If you do not fall into one of the above categories, by default you must be an independent contractor. Just to be sure, an employer of an independent contractor can control or direct only the result of the work, not how the work is performed. Your commission will be reported on a 1099 form. Statutory nonemployees and independent contractors are also responsible for the employer and employee portion of the Social Security and Medicare taxes.
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