agency

employee

An employee is a worker whose employer controls how, when, and where work is done, withholds income and payroll taxes, and may provide benefits. In real estate, most salespeople are independent contractors instead, but brokerages may hire licensees or assistants as employees. The IRS looks at factors such as control and whether pay is based on output to decide the classification.

Exam tip: Contrast employee and independent contractor. For a licensee to be a statutory nonemployee, the IRS generally requires a license, pay based on sales rather than hours, and a written contract stating contractor status.
Example: A brokerage pays its office manager a $55,000 salary, sets her hours, and withholds taxes, so she is an employee.

1. A broker wants to treat salespeople as independent contractors for federal tax purposes. Under the IRC §3508 statutory nonemployee rules, which combination is required?

Answer & explanation

Answer: C. IRC §3508 treats licensed real estate agents as statutory nonemployees when they are licensed, paid substantially on output, and have a written contract disclaiming employee treatment. Office space and expense arrangements matter for common-law tests but are not the statutory three-part test.

Related terms & state variants

broker independent contractor sponsoring broker unlicensed assistant

Sources

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Last verified: 2026-10-23