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Independent Real Estate Agent - Real Estate Agents as Independent Contractors


Know the Rules:

Real estate agents and brokers enjoy a special IRS classification as Statutory Indenpendent Contractors. Be sure that you know the rules to keep that status. In the changing world of real estate services, new business models and compensation methods may result in classification as an employee.

The sales associate must be a licensed real estate salesperson.:

This seems self-explanatory, but the law wanted to be sure that real estate brokers did not place assistants or agents-in-training in the status of independent contractor.

Income must be related to sales and not hours worked.:

If a broker has a licensed assistant, but pays them by the hour or bases their compensation on hours worked in some way, they cannot be an independent contractor. If you are a part time agent and are doing other jobs for the brokerage on an hourly or salaried basis, it's likely that independent contractor status would not apply, as the majority of your compensation would not be from sales related activities.

There must be a written independent contractor agreement.:

A written independent contractor agreement between the real estate agent and the broker would state the fact that the agent is to be treated as an independent contractor for federal tax purposes.

Note that there are other state laws that could base status on common-law for purposes of unemployment compensation and workers' compensation. In those states, the broker must meet the more restrictive requirements, whichever they are.

Common-Law or Statutory Independent Contractor Status:

The three requirements above are to qualify as a Statutory Independent Contractor under the law passed by Congress in 1992. It applies to federal tax purposes only.

Prior to that, the common-law tests of control of work were used, as well as the 20 or so tests applied by the IRS. These tests also took into account how the agent was paid for their efforts. The uneven application of the rules by the IRS resulted in Congress passing a law to create the status of statutory independent contractor. The tests above determine that status.

If your state uses more restrictive common-law tests, the broker must meet those more restrictive requirements.

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