Commission Calculator

Work out the commission on a sale or a period's total sales, at a flat percentage or on a tiered plan where the rate steps up as sales grow.

Set equal to the tier 1 limit to use only two tiers.

Commission
$3,850.00
Effective commission rate
5.13%Commission as a share of total sales
Sales after commission
$71,150.00
  • Commissions are taxable wages. The IRS treats them as supplemental wages; when they are paid separately from regular pay, an employer may withhold federal income tax at a flat 22% (37% on supplemental wages over $1 million in the year). Withholding is not the final tax bill.

Commission by tier

TierSales in tierRateCommission
Tier 1: $0 to $20,000$20,0003%$600.00
Tier 2: $20,000 to $50,000$30,0005%$1,500.00
Tier 3: over $50,000$25,0007%$1,750.00

Flat and tiered commission plans

A flat commission pays the same percentage on every dollar sold: 5% of $75,000 is $3,750. It is easy to check and easy to forecast.

A tiered plan raises the rate as sales grow, to reward the extra effort of selling more. The most common design works like tax brackets: the first $20,000 earns the tier 1 rate, the next slice earns the tier 2 rate, and only the sales above the top threshold earn the highest rate. Crossing into a higher tier never lowers what you earned on earlier sales.

Some plans instead pay the highest tier's rate on all sales once you reach it, sometimes called a retroactive or "all the way back" plan. These pay much more at the top, but they create a cliff: a sale that just tips you over a threshold can be worth thousands of dollars, and one that falls just short costs the same. Read your comp plan to see which type you have.

What counts as sales

Commission plans differ on the base. Some pay on revenue, some on gross profit, and some only once the customer has paid. Returns, discounts and chargebacks may be deducted later. Enter the amount your plan actually pays on, and use the same period (a month, a quarter) that your tiers are set for.

If you also have a draw against commission, the draw is usually an advance that is subtracted from commission earned. If you have a base salary, commission is paid on top of it.

Commission and taxes

Commission is taxed as ordinary wage income, the same as salary. The withholding can look high on a commission check because the IRS treats commissions as supplemental wages: if they are paid separately from regular wages, employers may withhold federal income tax at a flat 22%, or 37% on the part of supplemental wages over $1 million for the year. Social Security, Medicare and any state tax are withheld too. What is withheld is a prepayment; your actual tax is settled on your return.

Independent contractors paid on commission have no withholding and generally owe self-employment tax as well as income tax, so they should set money aside from each payment.

The formulas

Flat: Commission = S × rGraduated tiers: Commission = r1 × min(S, L1) + r2 × (min(S, L2) − L1) + r3 × (S − L2), counting only positive slicesEffective rate = Commission ÷ S × 100
  • S = sales amount
  • r = commission rate as a decimal
  • r1, r2, r3 = tier rates
  • L1, L2 = upper limits of tiers 1 and 2

Example

  1. A rep sells $75,000 in a month. Tier 1 pays 3% up to $20,000, tier 2 pays 5% up to $50,000, and tier 3 pays 7% above that.
  2. Tier 1: $20,000 × 3% = $600.
  3. Tier 2: ($50,000 − $20,000) × 5% = $30,000 × 5% = $1,500.
  4. Tier 3: ($75,000 − $50,000) × 7% = $25,000 × 7% = $1,750.
  5. Total commission = $600 + $1,500 + $1,750 = $3,850, an effective rate of 5.13%.
  6. If the plan paid the top tier's 7% on all sales instead, the commission would be $75,000 × 7% = $5,250.

Frequently asked questions

How do I calculate a 5% commission?

Multiply the sale by 0.05. A 5% commission on $75,000 is $3,750; on a $400,000 sale it is $20,000.

What is an effective commission rate?

Your total commission divided by total sales. On a tiered plan it falls between the lowest and highest tier rates. In the example, $3,850 on $75,000 of sales is 5.13%.

Why was so much tax taken from my commission check?

Employers can withhold federal income tax on commissions paid separately from salary at a flat 22%, plus Social Security, Medicare and state tax. If that is more than you actually owe, the difference comes back as a refund when you file.

Does reaching a higher tier reduce my commission on earlier sales?

Not on a graduated plan: each slice keeps its own rate. On a plan that pays the highest tier reached on all sales, reaching a tier increases the rate on everything, which is why those plans have a big jump at each threshold.

Is commission paid on the sale price or the profit?

It depends on the plan. Some pay on the sale price, others on the gross profit of the deal, which protects the business from reps who win sales by discounting. Enter whichever base your plan uses.

Sources

Last reviewed for 2026. How we calculate.