How to Calculate Commission
Commission = Sales × Commission rate
Commission rate = Commission ÷ Sales × 100
A $1,200 commission on $30,000 of sales is a 4% commission rate. The calculator also accepts a second, higher rate above a sales threshold.
Commission Structures
- Straight commission: pay is commission only.
- Base plus commission: a salary plus a rate on sales.
- Tiered commission: a higher rate above a target. 5% up to $100,000 and 8% above pays $9,000 on $150,000 of sales.
- Draw against commission: an advance repaid from later commission.
- Real estate commission: a percentage of the sale price, split between brokerages and agents.
Commission-only employees still must earn at least the federal minimum wage of $7.25 per hour worked under the FLSA, unless an exemption applies.
How Commission Is Taxed
Commission is taxed as ordinary income. Withholding uses the 22% supplemental rate when commission is paid separately, or the aggregate method when it is paid with salary. Self-employed agents on a 1099 pay self-employment tax instead of FICA.
Real Estate Commission
Real estate commission is the sale price times the agreed commission rate, then split between the brokerages and the agents.
Agent commission = Sale price × Rate × Agent's share of the split
A 3% commission on a $400,000 sale is $12,000. If the agent keeps 70% under the brokerage agreement, the agent's gross is $8,400. No law sets the rate; it is agreed in the listing or buyer agreement.
A licensed agent paid on sales under a written contract that says so is a statutory nonemployee for federal tax, so no tax is withheld. The agent pays self employment tax and income tax on profit, often through quarterly payments.
Commission After Tax by State
Commission after tax is the gross commission minus 22% federal withholding, 7.65% FICA and the state rate when it is paid as a separate supplemental check.
| State | State tax on $4,000 | Commission take-home |
|---|---|---|
| Texas | $0 | $2,814 |
| Arizona | $100 | $2,714 |
| Pennsylvania | $122.80 | $2,691.20 |
| Illinois | $198 | $2,616 |
Withholding is not the final tax. On the return, commission is added to all other income and taxed at the normal bracket rates.
Base Salary Plus Commission Paycheck
A base plus commission paycheck pays the salary on every payday and adds commission when it is earned. A $40,000 base with $4,000 of commission makes $44,000 for the year. Paid biweekly, the base alone is $1,538.46 per check, and commission checks come on top.
- Commission on its own check: the employer may withhold a flat 22% federal.
- Commission in the same check as salary: the whole check is withheld as regular wages, which can withhold more or less than 22%.
The Bonus Tax Calculator compares the flat and aggregate methods, which apply to commission the same way.
Tiered Commission Examples
A tiered plan pays the higher rate only on sales above the threshold, not on every dollar. The table uses 5% up to $100,000 and 8% above it.
| Sales | Commission | Effective rate |
|---|---|---|
| $50,000 | $2,500 | 5.00% |
| $100,000 | $5,000 | 5.00% |
| $150,000 | $9,000 | 6.00% |
| $200,000 | $13,000 | 6.50% |
| $300,000 | $21,000 | 7.00% |
A plan that pays the top rate on all sales once the target is hit is a different design, sometimes called a retroactive tier. Check the plan document for which one applies.
Commission, Minimum Wage and Overtime
Commission counts as pay for both minimum wage and overtime under the FLSA, unless the job falls under an exemption.
- Overtime: commission earned in a week goes into the regular rate, so it raises the overtime rate for that week.
- Retail and service exemption: no overtime is owed when the regular rate is above 1.5 times the minimum wage ($10.88) and more than half of pay comes from commission.
- Outside sales: employees who sell away from the employer's place of business are exempt from both minimum wage and overtime.
Commission Formula in Excel
A commission formula in Excel multiplies the sales cell by the rate cell. With sales in B2 and the rate in C2:
=B2*C2
A 2-tier plan, 5% up to $100,000 and 8% above, fits in one cell:
=MIN(B2,100000)*5% + MAX(B2-100000,0)*8%
For the commission rate, divide commission by sales: =D2/B2, formatted as a percent.
Frequently Asked Questions
How do I calculate my commission?
You calculate commission by multiplying your sales by your commission rate. $40,000 of sales at 6% is $2,400 of commission.
How do you calculate a commission rate?
You calculate a commission rate by dividing commission by sales and multiplying by 100. $900 on $15,000 of sales is a 6% rate.
How is commission taxed?
Commission is taxed like wages: 22% federal supplemental withholding when paid separately, plus 6.2% Social Security, 1.45% Medicare and state tax.
How do you calculate real estate commission?
You calculate real estate commission by multiplying the sale price by the commission rate. A 3% commission on a $400,000 home is $12,000 before the brokerage split.
How much of my commission will I take home?
You take home what is left after 22% federal withholding, 7.65% FICA and any state tax: $2,814 of a $4,000 check paid on its own in Texas.
How do you create a commission calculator in Excel?
You create one by putting sales in one cell, the rate in another and =B2*C2 in a third. Tiers use MIN and MAX to split sales at the threshold.
Is commission included in overtime pay?
Yes, for non-exempt employees. Commission is part of the regular rate, so the overtime rate for the week rises with it.
What is a draw against commission?
A draw is an advance on future commission, paid on a schedule and subtracted from commission when it is earned. The plan says whether an unearned draw must be repaid.