Rule for Commissions

• Employees are typically not required to report their commissions unless they are independent contractors or if their employers did not withhold Medicare or Social Security taxes from their commissions. Instead, they are responsible for using the wage information recorded by their employers on their W-2s to pay income taxes on their IRS Form 1040 tax returns. Form W-2 includes two forms printed on one page. Employers must complete all six parts of each form. Each employer is required to withhold employment taxes and income taxes from each employee's paycheck from wages, commissions, pensions and bonuses. However, independent contractors are responsible for reporting their own wages and commissions after receiving them. Employees must file Form 8919, Uncollected Social Security and Medicare Tax on Wages with their 1040 tax returns if their employers did not withhold income taxes on their commissions.
  
  

Reporting Tips

• Employees are required to provide their employers with a monthly total of tips they receive by the 10th day of the following month after receiving them, if they receive at least $20 in monthly tips. Employees who receive less than $20 in monthly tips are not required to report their tips to their employers but must pay income taxes on them on their tax reports. The IRS provides employees with an IRS Form 4070A, Employee's Daily Record of Tips, to record their daily tips. After receiving an employee's monthly report, employers are required to report them on their Form W-2 statements in the box "Wages, Tips, Other Compensation."
  
  

How to File Form W-2

• The IRS has special filing requirements for employers completing a Form W-2. Employers are required to type their entries in 12-point Courier font and cannot handwrite their entries. Furthermore, the IRS cannot process entries in script, bolded or italicized fonts and can only process entries in black ink. Employers cannot use dollar signs and must use decimal points without commas.
  
  

Reporting Income and Record Retention

• Employers must send Copy A of the form to the Social Security Administration by the last day in February. Employers may have to send Copy 1 to their city or county tax authorities and must send their remaining Form W-2 copies to their employees by January 31. Employers are required to retain their wage information, including their Copy D, for at least four years, according to the Internal Revenue Code.
  
  

Considerations

• Since tax laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice tax law in your state.