Why Does Keller Williams Issue a 1099 and How Should You Report It?

Real estate agents working with Keller Williams receive a 1099 form instead of a W-2, indicating they are independent contractors rather than employees. This classification impacts how their income is reported and taxed, making it crucial to understand the financial and tax implications.

Since independent contractors handle their own taxes and deductions, knowing how to report income and minimize taxable earnings can significantly affect overall tax liability.

Why Keller Williams Issues a 1099

Keller Williams classifies its agents as independent contractors, issuing Form 1099-NEC instead of a W-2. This classification reflects the agent-broker relationship, where agents run their own businesses rather than working as direct employees. The IRS determines worker classification based on behavioral control, financial control, and the nature of the relationship. Keller Williams agents set their own schedules, cover their own expenses, and earn commissions instead of a fixed salary, meeting the IRS definition of independent contractors.

Because of this classification, Keller Williams does not withhold income taxes, Social Security, or Medicare taxes. Agents receive their full earnings and are responsible for their own tax obligations. The brokerage must issue a 1099-NEC to any agent earning at least $600 in a tax year, as required by IRS regulations.

Self-Employment Tax Implications

Real estate agents receiving a 1099-NEC must pay self-employment tax, which covers Social Security and Medicare contributions. Unlike employees, who share these taxes with their employer, independent contractors pay the full amount. As of 2024, the self-employment tax rate is 15.3%—12.4% for Social Security on earnings up to $168,600 and 2.9% for Medicare, which applies to all net income. Those earning above $200,000 ($250,000 for married couples filing jointly) must also pay an additional 0.9% Medicare surtax.

Since taxes are not withheld, agents must make estimated quarterly tax payments to the IRS by April 15, June 17, September 16, and January 15 of the following year. Failure to pay enough throughout the year can result in penalties and interest. The IRS generally requires self-employed individuals to pay at least 90% of their current-year tax liability or 100% of the prior year’s tax to avoid underpayment penalties.

To lower taxable income, agents can deduct business expenses on Schedule C (Form 1040), including marketing costs, brokerage fees, mileage, and office supplies. The net profit reported on Schedule C determines self-employment tax liability. Additionally, half of the self-employment tax can be deducted as an adjustment to income, reducing overall tax liability.

Reporting Different Categories of Income

Keller Williams agents may receive income from multiple sources, all of which must be reported correctly. The IRS distinguishes between commissions, referral fees, and other earnings.

Commissions

The primary source of income for most agents is commission payments from real estate transactions. These payments are reported on Form 1099-NEC and must be included on Schedule C as gross receipts. Since commissions are typically paid after closing, agents should maintain detailed records of each transaction, including settlement statements and commission disbursement authorizations.

Under the cash accounting method, which most self-employed individuals use, income is reported in the year it is received. For example, if a commission check is issued in late December but not deposited until January, it should be reported in the following tax year. This distinction can impact tax planning strategies, such as deferring income to manage taxable earnings.

Referral Fees

Agents who refer clients to other real estate professionals may receive referral fees, which are also reported on Form 1099-NEC. These payments are taxable income and must be included on Schedule C. Referral fees should be documented with a written agreement outlining the terms of payment to substantiate income in case of an IRS audit.

If an agent pays a portion of a referral fee to another licensed professional, they may need to issue a Form 1099-NEC to that recipient if total payments exceed $600 in a tax year.

Other Earnings

Beyond commissions and referral fees, agents may earn income from training services, coaching programs, or profit-sharing distributions.

Keller Williams’ profit-sharing program provides eligible agents with a share of the brokerage’s revenue based on the performance of agents they have recruited. While these payments are not considered wages, they are still taxable and must be reported as business income.

Income from speaking engagements, consulting, or educational workshops should also be reported on Schedule C. If payments are received through third-party platforms like PayPal or Venmo, a Form 1099-K may be issued if total transactions exceed $20,000 and 200 transactions in a year.

Calculating Deductible Business Expenses

Reducing taxable income starts with identifying deductible business expenses. The IRS allows real estate agents to deduct ordinary and necessary costs incurred while running their business. Ordinary expenses are common in the industry, while necessary expenses help generate income.

One major deduction is vehicle use. Since agents frequently travel to property showings, client meetings, and open houses, they can deduct vehicle expenses using either the standard mileage rate or actual expense method. In 2024, the IRS standard mileage rate is 67 cents per mile. Alternatively, agents using the actual expense method can deduct fuel, maintenance, insurance, and depreciation based on business use. Choosing the most beneficial method requires careful record-keeping.

Marketing and advertising expenses also reduce taxable income. Costs for digital advertising, website maintenance, business cards, and home staging services are deductible. Expenses related to social media promotions and search engine advertising also qualify.

Record-Keeping Requirements

Accurate financial records are essential for substantiating income and deductions in case of an IRS audit. The IRS generally requires taxpayers to keep records for at least three years from the date a return is filed, but in cases of substantial underreporting, records should be retained for up to six years.

Receipts, invoices, bank statements, and commission disbursement records should be organized systematically. Digital tools like QuickBooks, Xero, or Expensify can help categorize transactions and generate reports for tax purposes. Maintaining a separate business bank account and credit card simplifies tracking deductible expenses and prevents the commingling of personal and business funds.

Combining State and Federal Filings

In addition to federal tax obligations, Keller Williams agents must comply with state tax requirements, which vary by location. Most states impose income taxes on self-employed individuals, and some require estimated tax payments similar to federal obligations. Agents working in multiple states may need to file nonresident returns if they earn commission income from transactions outside their home state.

Certain states impose additional business taxes, such as gross receipts or franchise taxes, which may apply depending on the agent’s business structure. For example, California levies an $800 minimum franchise tax on LLCs, even if the business operates at a loss. Understanding state-specific filing requirements helps agents avoid penalties and remain compliant. Consulting a tax professional familiar with real estate taxation can provide guidance on navigating multi-state tax complexities.