How Much Taxes Do Realtors Pay as Independent Contractors?

Many real estate professionals operate as independent contractors. This status significantly shapes their tax obligations compared to traditional employees. Realtors are responsible for managing their own tax payments and understanding a distinct set of rules. Navigating income, deductions, and tax payments requires careful attention.

Understanding Your Income and Tax Status

A realtor’s income primarily comes from commissions earned on successful property transactions. Unlike traditional employees who receive a Form W-2 with taxes already withheld, realtors typically receive a Form 1099-NEC, Nonemployee Compensation, from their brokerage.

Operating as an independent contractor means the brokerage does not withhold federal income tax, Social Security, or Medicare taxes from commission payments. This places the full responsibility for calculating and paying these taxes directly on the realtor. Accurate tracking of all income received is an initial step in managing tax liabilities.

This independent contractor status also means realtors are considered self-employed for tax purposes. They operate their own small business, even if affiliated with a larger brokerage. Understanding this difference is key to correctly addressing tax requirements and leveraging available tax benefits.

Key Taxes for Realtors

Realtors face several types of taxes due to their self-employed status, including self-employment tax, federal income tax, and potentially state and local income taxes. Self-employment tax covers Social Security and Medicare contributions for self-employed individuals.

The rate is 15.3% on net earnings from self-employment. This rate consists of 12.4% for Social Security, applied to net earnings up to $168,600, and 2.9% for Medicare, which applies to all net earnings. To calculate this tax, 92.35% of net self-employment earnings are subject to the 15.3% rate.

Beyond self-employment tax, net earnings from real estate activities are also subject to federal income tax. The amount owed depends on an individual’s total taxable income, filing status, and federal income tax brackets. Realtors can deduct one-half of their self-employment tax when calculating their adjusted gross income for federal income tax purposes.

State and local income taxes vary significantly across the United States. Some states or localities may impose an income tax on self-employment earnings, while others do not. Realtors should verify the specific tax laws in their state and local jurisdictions.

Maximizing Deductions

Independent contractors can significantly reduce their taxable income by deducting ordinary and necessary business expenses. An expense is considered ordinary if it is common and accepted in the real estate industry, and necessary if it is helpful and appropriate for the business. Maintaining meticulous records for all business-related expenditures is important for substantiating these deductions.

Vehicle expenses are a common deduction for realtors. Taxpayers can choose between deducting actual car expenses (gas, oil, repairs, insurance, depreciation) or using the standard mileage rate. For 2025, the standard business mileage rate is 70 cents per mile. Accurate mileage logs are necessary regardless of the method chosen.

The home office deduction is available if a portion of the home is used exclusively and regularly as a principal place of business or as a place to meet clients. This deduction can be calculated using the regular method (calculating the percentage of the home used for business) or a simplified option. The simplified method allows a deduction of $5 per square foot, up to a maximum of 300 square feet, for a maximum deduction of $1,500.

Other deductible expenses for real estate professionals include:
Marketing and advertising costs
Professional dues for real estate associations
Fees for licenses and continuing education
Brokerage fees and commissions paid to other agents or referral sources
Technology and office supplies (computers, software, phones, stationery)

Health insurance premiums can be fully deductible for self-employed individuals if they are not eligible for an employer-sponsored health plan. This deduction is taken as an adjustment to income on Schedule 1 of Form 1040. Contributions to self-funded retirement plans, such as a Simplified Employee Pension (SEP) IRA or a Solo 401(k), also offer deduction opportunities. For 2025, the maximum contribution to a SEP IRA or Solo 401(k) is $70,000.

Managing Your Tax Payments

Since no taxes are withheld from their commission income, realtors must manage their tax payments throughout the year. This involves making estimated tax payments to the Internal Revenue Service (IRS) and, if applicable, to state and local tax authorities. Failing to pay enough tax through estimated payments can result in underpayment penalties.

Estimated taxes are typically paid in four quarterly installments. For a calendar year taxpayer, the due dates are April 15, June 15, September 15, and January 15 of the following year. If a due date falls on a weekend or holiday, the deadline shifts to the next business day. These payments should cover both federal income tax and self-employment tax.

Realtors can base their estimated payments on their prior year’s tax liability or on their expected income and deductions for the current year. Adjusting payments throughout the year is permissible if income or expenses change significantly.

Meticulous record-keeping is fundamental for accurate tax calculation and in the event of an audit. This includes maintaining detailed records of all income received, business expenses, mileage logs, and receipts. Organizing these documents systematically simplifies tax preparation and provides necessary documentation.

Consulting with a qualified tax professional is often beneficial. A professional can provide personalized guidance, help identify all eligible deductions, and ensure compliance with tax laws.