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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22739
Experience:  Taxes, Immigration, Labor Relations
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I currently reside in NJ, and my office is located in California.

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I currently reside in NJ, and my office is located in California. So, I get paid from California, with NJ State, SUI, and SDI taxes taken out, along with Social Security, etc... I wanted to see why my paychecks keep differing. The company just formally registered the business in Dec 2012; before that it was part of a Venture Capital firm, who was paying me for the early part of 2012. Starting in Dec 2012, I was payed by my actual company, and the company bank account.

In Dec 2012, I got a check which had total deductions of about 33% which is what I am used to. The gross total of the check was under $5k. The deductions include Federal, State, SS, Medicare, etc... The gross salary was $2403, and the net I usually get is $1812. The commission on the check was $2486, and that was combined with my weekly check. So, my total net was $3279, which makes the net commission for the paycheck $1467 (41% deductions).

In Jan 2013, I got my normal salaried paycheck which was the same gross ($2403), but the net was now $1759, which I was a little surprised by, but it looks like they took more SS out. The next paycheck, was one which included commission and my regular salary, which had a gross of $8741, and I received $5137. SO, the regular pay was $2403 gross, and I assume $1759 net, based on my last regular paycheck. The commission on this cycle was $6338, which made the commission net $3378 (47% deductions). What is the reason for this? I am afraid that my accounting / paycheck people are messing something up.

Furthermore, why does the Dec 2012 amount and Jan 2013 regular pay amount differ?? IS there a better way for them to pay me? Maybe JUST do commission on one check and salary on another. It seems that Im getting escalated to another deduction level because my commission is higher, and they are combining it.

Please advise....
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
When you said that your "office is located in California" - the question arises - where is your actual workplace? That is important in determination if your wages are subject of California taxes.
If you work in California - compensation you receive is considered from California sources - and as such - it is taxable for California REGARDLESS of your residency.

LEV :

If however - your workplace is outside of California - and because you are not a resident of California - your compensation woudl not be taxable for that state.

Customer:

My workplace is in California, but I work remotely from NJ, which is also where I reside

Customer:

Im just curious as to why there is such a discrepancy, in even my regular paycheks...

Customer:

Like for example., for a majority of the year, my check was $1812....then SS stopped being deducted and it was around $1930...now it is $1759!

LEV :

When you said "work remotely" - that might mean that your actual workspace is in NJ - and not in CA.

Customer:

did something change i missed?

Customer:

yes you are right...actual physical workplace is NJ....so I do pay NJ state taxes

LEV :

Specifically for social security taxes - there is a limit of wages subject of that tax. That is a federal tax - not related in which state you weer working. For 2012 - the limit is $110,100 - so as soon as your wages reached that limit - your employer should stop withholding social security tax.
For 2013 - the limit is $113,700.

Customer:

ok.....so that explains last years shift.....but how is my net salary this year completely different....and why does it seem the commission is always different...

Customer:

i thought its taxed flat at 40%

LEV :

IN additional - last year social security tax rate was reduced due to economic situation - it was 4.2%. Starting 2013 - that reduction expired - and now we pay 6.2%. You should notice that on your pay stub.

Customer:

k...that explains the shift in salary net...but what about the commission....

Customer:

Also, is there a better way for my company to pay me my commission to maximize my net??

LEV :

There is no flat tax in the US. However withholding is different. Withholding is not your actual tax liability - your tax liability will be determined when you file your tax return - and if withholding is more than your tax liability - you will claim a refund.
Withholding from regular and from supplemental wages (such as bonuses) are different. Withholding from regular wages are based on how you filed W4 form with your employer and special withholding tables. However withholding from supplemental wages is generally based on flat percentage - for federal income tax purposes - it is 25%.

LEV :

Overall - your tax liability woudl be the same - that might affect the time when you pay your taxes - but when you file your tax return - your tax liability will be the same regardless if you are paid regular wages or bonuses.

Customer:

ok, but is my paycheck in error ? should i ask them to split the comm and regular pay? Also, should I ask them to split my commission into lower amounts? Would that help me take home more/?

LEV :

As I said - that will not affect your overall tax liability - but will only affect WHEN taxes are paid. You may negotiate different pay schedule with your employer - and that might change withholding - but as long as your total compensation will be same - your tax liability will not be affected - so I would say - from tax prospective there would not be any difference.

LEV :

Please be aware that as soon as your total wages will reach $113,700 in 2013 - your employer will stop deducting social security taxes.

Customer:

ok...so how do you recommend I negotiate a different pay schedule with my employer. Im afraid, they are clueless, so I really want to make sure I maximize take home...

Customer:

what methods can I use

LEV :

You may request - for instance higher regular pay - and lower commissions. But honestly - I do not see any particular reason for that.

Customer:

ok

LEV :

Now - your withholding from supplemental wages - 25% federal income tax; 6.6% CA state taxes; 6.2% social security ; 1.45% Medicare tax; SDI tax 1% - total 40.25%

LEV :

By the way there is a limit on SDI wages - up to $100,880 - so as soon as your total wages will reach that amount - they will stop SDI withholding. So you may notice that your net pay will be higher later in the year.

Customer:

ok...

LEV :

Some correction - CA withholding from supplemental pays is following
Bonuses and stock options 10.23 percent (.1023)
Other types (such as overtime pay, commissions, sales awards, severance, and vacation pay) 6.6 percent (.066)

Customer:

so theres no realy way for me to maximize what I get for my commissions? Is there any way they can just pay me it as regular pay, on top of my existing regular pay?

LEV :

If your employer will increase your regular wages and decrease your commissions - that might reduce your withholding - so your net pay could be higher. However - that will not change your total tax liability that you will determine at the tax time.

LEV :

Another option - to treat all payments as regular wages - if they are paid at the same time - then - you employer MAY just use withholding tables instead of flat withholding rate.

LEV :

You may discuss that option with your payroll person if you wish, But again - nothing will affect your overall tax liability. If you have larger withholding - you may view that as saving account - and will be getting larger refund.

Customer:

will payroll treat all wages as regular? or is that considered fraud?

LEV :

That is not a fraud - that is the option for your employer. Most employers treat supplemental wages separately for withholding purposes. Your employer may treat all wages as regular if they are paid regularly with your normal paycheck. However - that treatment should be for ALL employees - they may not treat employees differently.
So that is a choice your employer could made.

Customer:

ok

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22739
Experience: Taxes, Immigration, Labor Relations
Lev and 2 other Tax Specialists are ready to help you
Expert:  Lev replied 1 year ago.
If you want to discuss that option with your employer - See IRS publication 15 - www.irs.gov/pub/irs-pdf/p15.pdf - page 16 - Supplemental wages - there are two ways to withhold income taxes.
Similarly - see California publication - http://www.edd.ca.gov/pdf_pub_ctr/de44.pdf - page 14:
If the supplemental wage is given to the employee at the same time as the employee’s regular wages are paid, you are required to treat the sum of the payments as regular wages and withhold PIT based on the regular payroll period using the PIT withholding schedules.

You may point your payroll person to these publications.
Be sure to ask if you need any help with tax related issues.

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