Determining Your Assistant’s Tax Status
Because most real estate professionals work as independent contractors, it’s tempting to put your assistant in the same category. However, the issue is more complicated for personal assistants. Real estate practitioners are classified as “statutory independent contractors” by the Internal Revenue Service if they meet three criteria — licensure, compensation based on sales or output, and a written agreement with the person for whom the service is performed.
Many practitioners wrongly assume that personal assistants who hold real estate licenses automatically qualify as independent contractors. But since they do not contract directly with clients and in some cases do not receive compensation based solely on output, they may not meet these statutory requirements. To determine if your assistant can be classified as an independent contractor, use these criteria from the IRS.
Your assistant is probably an employee if you answer “yes” to any of the following questions:
- Is the worker required to comply with instructions about when, where, and how to perform work?
- Is training provided to the worker?
- Are the worker’s services integrated into general business operations?
- Must the worker render the service personally?
- Does the person for whom the work is performed hire, supervise, and pay other people to assist the person with work?
- Are there set work hours?
- Does the worker have a continuing relationship for the person for whom the work is performed?
- Must the worker devote substantially full time (what is customarily considered full time in the business and the area) to the work?
- Is the work performed on the employer’s premises?
- Must the worker perform services in a set sequence?
- Must oral or written reports be submitted regularly to the person for whom the work is performed?
- Is the worker paid by the hour, week, or month?
- Are the worker’s travel and business expenses paid for?
- Do you supply the tools, materials, and equipment needed to perform the work?
- Can the worker be discharged at will?
- Can the worker terminate the relationship without incurring liability?
If you answer “yes” to any of these four questions, it’s a good indication that the assistant may be an independent contractor:
- Does the worker invest in facilities used to perform the work, such as an office?
- Can the worker realize both profit and loss?
- Can the worker work for more than one company at a time?
- Can the worker make services available to the general public?
Keep in mind that just because you sign an agreement with personal assistants stating that they are independent contractors doesn’t mean that the IRS will agree with you. For more information on rules for determining if a worker is an employee, download the Employer’s Supplemental Tax Guide. You also can submit your job description to the IRS for a ruling using Form SS-8. Finally, note that there also are state laws that affect independent contractor status.
Note: This information provides general legal information and should not be relied upon as legal guidance. Before acting, both the relevant laws and legal counsel should be consulted. This information should not be construed as specific legal advice nor as an opinion on particular facts, cases, or situations.
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