Commissions in California are taxed as ordinary income at both the federal and state level. There is no special commission tax rate. What differs from a regular salary is how the tax gets collected: W-2 employees have money withheld from each commission check, while 1099 independent contractors pay their own federal and state tax in quarterly installments and cover self-employment tax on top. California’s income tax runs from 1% to 12.3%, with a 1% Mental Health Services surtax pushing the top rate to 13.3% on income above $1 million, so a high-earning commission worker can see a combined federal-plus-state burden above 50% once payroll taxes are added in.
The Rates That Apply to Commission Income
California folds commissions into your total taxable income and taxes the whole thing under its graduated brackets. For a 2025 single filer, the 9.3% bracket starts near $72,700 in taxable income, and the 12.3% top bracket kicks in above roughly $743,000. The 1% surtax layers on above $1 million.1Franchise Tax Board. 2025 California Tax Rate Schedules Thresholds adjust each year for inflation.
A large single commission, or an annual payout landing in one check, can push you into a higher bracket for that year. Withholding methods try to approximate your rate as the year moves along, but they don’t always match what you actually owe. That gap gets reconciled when you file.
How Commissions Are Withheld for W-2 Employees
Both the IRS and California treat commissions as “supplemental wages,” and the withholding method depends on whether the commission is paid separately or bundled into a regular paycheck.
Federal Withholding
When a commission is paid separately from regular wages, the employer can apply a flat 22% federal withholding rate. When the commission rides along in a regular paycheck, the employer uses the aggregate method: your commission gets added to that period’s regular pay, and withholding is calculated on the combined total using your W-4 as though you earned that amount every pay period. Supplemental wages above $1 million in a single calendar year are withheld at 37%.2Internal Revenue Service. Publication 15, (Circular E), Employer’s Tax Guide
The aggregate method often over-withholds, because it treats a one-off commission as though you’ll earn that inflated amount every period. That’s the usual reason commission earners see a big refund. You’re not being taxed more; you’re lending the government money at zero interest until you file.
California Withholding
California applies its own supplemental wage rules. If a commission is paid at the same time as regular wages, the employer must use the aggregate method with California’s standard wage tables. If the commission is paid separately, the employer can either aggregate or withhold a flat 6.6%.3Employment Development Department. Personal Income Tax Withholding – Supplemental Wage Payments Bonuses and stock options use a higher 10.23% flat rate, but commissions specifically fall under 6.6%.
Payroll Taxes on Top of Income Tax
Income tax withholding is only part of what comes out of a W-2 commission check. Several payroll taxes stack on top:
- Social Security at 6.2% of wages up to the annual wage base, matched by the employer.
- Medicare at 1.45% on all wages with no cap, also matched by the employer.
- An Additional Medicare Tax of 0.9% on wages above $200,000 for single filers and $250,000 for married filing jointly. The employer does not match this piece; the employee pays it in full.4Internal Revenue Service. Topic No. 560, Additional Medicare Tax
- California State Disability Insurance at 1.3% for 2026, with no wage ceiling. Since January 1, 2024, all wages are subject to SDI regardless of amount.5Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging
For a commission earner making $300,000, SDI alone runs $3,900, and the Additional Medicare Tax adds another $900 beyond regular Medicare. Easy amounts to miss when you’re budgeting off gross commission checks.
What Changes if You’re a 1099 Independent Contractor
Independent contractors receive the full gross commission with nothing withheld. You handle federal income tax, California income tax, and self-employment tax yourself. Anyone who paid you $600 or more during the year sends a Form 1099-NEC.6Internal Revenue Service. When Would I Provide a Form W-2 and a Form 1099 to the Same Person
Self-Employment Tax
Self-employment tax is 15.3% of net earnings: 12.4% for Social Security and 2.9% for Medicare. It combines the employer and employee shares of payroll tax into a single obligation reported on Schedule SE.7Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) The 0.9% Additional Medicare Tax applies to self-employment income above the same thresholds that apply to wages.4Internal Revenue Service. Topic No. 560, Additional Medicare Tax
You get a partial offset: you can deduct the employer-equivalent portion (roughly half) of your self-employment tax as an adjustment to gross income on Schedule 1. That reduces taxable income for federal and California purposes, though it does not reduce the self-employment tax itself.8Internal Revenue Service. Topic No. 554, Self-Employment Tax
Quarterly Estimated Payments
Because nothing is withheld, contractors owe quarterly estimated tax to both the IRS and the California Franchise Tax Board. Federal payments are due April 15, June 15, September 15, and January 15 of the following year.9Internal Revenue Service. Estimated Tax Payments for Individuals
California’s schedule is a trap for people who assume it mirrors the federal one. The state wants 30% of your annual estimate by April 15, 40% by June 15, nothing on September 15, and the final 30% by January 15.10State of California Franchise Tax Board. Estimated Tax Payments The June installment is disproportionately large, and there’s no state payment in September even though the federal one is due.
You’re required to make California estimated payments if you expect to owe $500 or more in state tax ($250 if married filing separately) after withholding and credits. You avoid underpayment penalties by paying at least the lesser of 90% of the current year’s tax or 100% of the prior year’s tax through timely installments.10State of California Franchise Tax Board. Estimated Tax Payments
Federal safe harbor rules work the same way, with one wrinkle for higher earners: if your prior-year AGI exceeded $150,000 ($75,000 if married filing separately), you have to pay 110% of the prior year’s tax, not 100%, to be fully protected.11Internal Revenue Service. Instructions for Form 2210 Commission income swings from year to year, and it’s easy to cross that threshold without noticing.
Deducting Work-Related Expenses
Expense deductions are where classification matters most, and where California quietly diverges from federal law in a way that helps W-2 commission earners.
Contractors
Contractors deduct business expenses on Schedule C: travel, vehicle costs, advertising, professional development, supplies, home office, and so on.12Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) Those deductions reduce income tax and self-employment tax, because self-employment tax is calculated on net earnings after Schedule C. That double benefit is why expense tracking pays off so heavily for contractors.
W-2 Employees
Federally, W-2 employees generally cannot deduct unreimbursed business expenses. The Tax Cuts and Jobs Act suspended the miscellaneous itemized deduction for employee expenses through 2025, and the suspension remains in effect for 2026. Only narrow categories, such as Armed Forces reservists and qualified performing artists, can still file Form 2106 federally.13Internal Revenue Service. Instructions for Form 2106
California did not conform. W-2 employees who pay for their own business expenses out of pocket can still deduct them on the California return using Schedule CA (540).14Franchise Tax Board. 2025 Instructions for Schedule CA (540) California Adjustments The mechanics: prepare a federal Form 2106 using California amounts, then carry the result to Schedule CA. The deduction is subject to a 2% AGI floor, so only expenses above 2% of your adjusted gross income actually reduce your state taxable income.
For a commissioned salesperson paying out of pocket for mileage, phone, client entertainment, or professional licensing, this is a state-only deduction worth claiming. It doesn’t help federally, but at California rates it moves real money.
When a Commission Gets Clawed Back
Sales commissions are often subject to chargebacks when a deal falls through or a customer returns a product. If the chargeback happens in the same tax year the commission was paid, your W-2 or 1099-NEC nets it out and you owe tax only on what you kept.
The trickier case is repaying a commission in a year after you originally received it, because you already paid tax on the full amount. If the repayment is $3,000 or less, you claim a deduction in the year you repay. If it exceeds $3,000, the federal “claim of right” doctrine lets you calculate your tax two ways: once with a deduction for the repayment in the current year, and once by recomputing the prior year’s tax as though you never received the income. You pay the lower of the two.15Office of the Law Revision Counsel. 26 U.S. Code 1341 – Computation of Tax Where Taxpayer Restores Substantial Amount Held Under Claim of Right If the original commission landed you in a high bracket and your current-year income is lower, the recomputation route usually wins.
A Word on Classification
Every answer above assumes you know whether you’re a W-2 employee or a 1099 contractor. California uses a stricter test than federal law for that determination, and it’s possible (though uncommon) to be classified one way federally and another way at the state level.16Department of Industrial Relations. Independent Contractor Versus Employee If you receive a 1099-NEC for work that looked and felt like employment (set hours, employer-provided tools, integrated into the company’s core business), the classification may be wrong, and that affects your entire tax filing.
The Bottom Line for California Commission Earners
A W-2 commission earner in the 24% federal bracket and the 9.3% California bracket is already at a 33.3% marginal rate before Social Security (6.2%), Medicare (1.45%), and SDI (1.3%) come out. A contractor in the same brackets faces an even higher effective rate, because self-employment tax replaces the employer-paid half of payroll tax, partially offset by the above-the-line deduction for half of that tax.
Get classification right, track expenses (especially W-2 employees using California’s state-only deduction), and pay estimates on time. Underpayment penalties from the IRS and the FTB are modest on their own, but they compound when both agencies assess them in the same year.