In almost all circumstances you should obtain an Independent Contractor Agreement with a real estate licensee affiliated with your firm. (ex. VAR Independent Contractor Agreement Between Real Estate Broker and Salesperson (Form 1700)) – not VAR Form 420 (a listing brokerage agreement)
- IRS regulations recognize that brokers must supervise agents as required by law. Therefore, if all three elements are met agents are considered independent contractors:
o The individual must be a licensed real estate professional.
o Substantially all of their payments must be directly related to sales or output, rather than the number of hours worked.
o Their services must be performed under a written contract providing that they will not be treated as employees for federal tax purposes.
- However, firms may lose independent contractor status if they exercise to much control.
- In Virginia, as long as you have correctly classified an individual as an Independent Contractor under IRS regulations, you are not obligated to withhold state income tax.
- Virginia worker’s compensation laws and Virginia unemployment laws have carve outs for real estate salespersons. To be treated as an Independent Contractor:
o Substantially all compensation from the business comes from real estate commissions;
o The services are performed under a written contract specifying the person is an independent contractor; and
o The contract includes a provision that says the person will not be treated as an employee for federal income tax purposes.
- Your firms should consult with its tax professional and/or an attorney when making determinations about Independent Contractor Status. (2016)