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Calculate sales commission with flat or tiered structures. See gross commission, estimated federal tax, and net take-home pay.
Used for tax estimate only
Flat Commission:
Commission = Sale Amount × Rate
Tiered Commission:
Commission = Σ (sales in each tier × tier rate)
Net = Gross Commission + Base Salary − Estimated Federal Tax (2024 brackets, standard deduction).
Tiered commissions pay different rates based on cumulative sales volume. For example: 3% on first $50,000, 5% on next $50,000, and 7% on everything above $100,000. This incentivizes reps to exceed their quota because each additional dollar earns a higher rate.
Commission rates vary widely by industry. Real estate agents typically earn 2.5-3% per side. Software sales reps earn 8-12% of annual contract value. Insurance agents earn 5-20% on premiums. Retail sales reps earn 1-5%.
A draw is an advance on future commissions, similar to a salary. A recoverable draw must be repaid if commissions fall short. A non-recoverable draw is forgiven. Draws help salespeople during slow periods or when ramping up.
Commissions are taxed as ordinary income. For W-2 employees, the IRS requires withholding at the supplemental wage rate (22% flat for amounts under $1M). Self-employed commission earners also pay self-employment tax (15.3% on top of income tax).
Gross commission is what you earn from sales before any deductions. Net commission is what you take home after taxes, business expenses, chargebacks, and any recoverable draw repayments are subtracted.