Bonus and commission income: How the Monthly Number Is Actually Calculated
Bonus and commission income: basis = documented 2-year average, ratio often excluded or capped, taxed varies.

| Wage basis | Documented 2-year average |
|---|---|
| Replacement ratio | Often excluded or capped |
| Tax treatment | Varies |
Policy language decides: ‘income’ vs ‘salary.’ A commissioned salesperson at 60% of base salary takes a 40% real pay cut — the income definition is the single most expensive line in the contract.
The calculation
| Parameter | Detail |
|---|---|
| Benefit component | Bonus and commission income |
| Wage basis | Documented 2-year average |
| Ratio | Often excluded or capped |
| Tax treatment | Varies |
Two policies can both say ‘60%’ and pay thousands apart — the difference lives in the wage basis and the tax line, not the headline ratio.
Worked example
Take a $120,000 package that is $90,000 base plus $30,000 bonus. A ‘salary’ policy pays 60% of $90,000 = $4,500/month. An ‘income’ policy paying 60% of documented average earnings pays $6,000. Same person, same premium tier — $18,000 a year apart.
What to check in your contract
- The word after ‘disability income’ — salary, earnings or income.
- Whether employer-paid premiums make benefits taxable.
- Whether the ratio applies before or after SSDI offset.
Bonus and commission income: the headline ratio is marketing — the wage basis and tax line are the contract.