Posted by Carmen Garcia

Having Your Real Estate Agent Commission on 1099

Having Your Real Estate Agent Commission on 1099

For people in the real estate business with agents that you give commissions after every sale or lease, you must report such payment on a 1099 MISC form. Your obligation as an employer to create the 1099 MISC form depends on the status of the agent – whether a contractor (a freelancer) or an employer.

The entire amount of payment the agent gets from you throughout the year also determines your obligation to report the real estate commission or not.

Employee & Contractor Agents

For all real estate agents hired as an employee, there is no need for Form 1099 MISC to report their commission earnings. You will need a W-2 Form to record and report all payments and other compensations that can be taxed. As long as they are employers, you must withhold income alongside the employment taxes from their checks.

On the other hand, however, for real estate agents working as contractors, it is mandatory to report their commissions on Form 1099 MISC. This applies to self-employed contractors. This also is a factor of the entire payment you make in a year. 

$600 Or More

On the closure of the tax year, you must have the total value of the amount your business paid out to every agent in commission. You might not necessarily have to report commissions in your 1099, except the total is at least $600. It is not a factor of the individual payments but the total amount. With this, for all realtors that earned $600 or more in commissions, the annual total has to be reported in box 7 of the 1099 MISC. This is the space for reporting compensation payments of non-employees.

Classify Your team Well

Be sure you are not classifying W-2 employees as independent contractors. Only actual employees get a W-2 form. Independent contractors, on the other hand, get a 1099 form. Depending on the state, the broker pays the commission, and not the team leader. If they have additional job duties that are paid for, in addition to the role of a licensed realtor, they might be classified as an employee which will reflect on the payroll.

This is the case as well if you hire someone to help you with clerical or other office duties. While many people prefer to go via the 1099 route in a bid to avoid payroll issues, it is a bad call. 

As a result, you are better off staying within the law with the correct classification of your employees at the point of hiring. You can also get in touch with a tax pro to help you make the needed changes to your payroll.

Filing Requirements

In filling Form 1099 MISC to send in your real estate agent's commissions, there are some deadlines you need to be aware of. Precisely a month after the tax year ends (January 31), you must send each agent a copy of 1099. In addition, if you will be sending in a paper copy, it is a good idea to file the form with the IRS. If you are submitting the 1099s electronically, consider filing by March 31.

In case you need extra time, there is a 30-day extension that you can get. You are, however, eligible for this only if you prepare Form 8909, and you submit it to the IRS on time.

Form 1099-MISC Penalties

There will surely be penalties in a case when you do not provide a 1099 way to your real estate agent by the deadline. Also, if you do not file the form with the IRS by the deadline, you might get slammed with a fee. You will get a $30 charge per 1099 MISC that you submitted late within 30 days after the deadline. The only condition in which you can escape the deadline is if you have a genuine cause. 

The penalty rises to $60 if you do not file 60 days after the deadline. This same penalty also applies to every 1099 MISC form that you do not provide to your real estate agent by the deadline. This comes with any penalty you might owe the IRS.

Carmen Garcia
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