Q&A: Do Realtors Need A Payroll Service?
This question was recently posed to us here at Cirrus Payroll. If you’re a realtor wondering about payroll (or know a realtor who is active in the market), this information could be worth thousands of dollars, so it’s worth sharing!
QUESTION: I am interested in knowing if your services would work for Realtors? Do you do this service for individuals or must one have a minimum number of employees?
OUR ANSWER: So, first of all, anyone with employees is going to be running payroll, whether done in-house via software such as QuickBooks, or outsourcing it to a service such as ours. We have no employee minimums — we have many clients that just have a single employee. For the most part, the tax filing and deposit requirements are essentially the same no matter the size of the employee base, so we can provide payroll services for any size company.
Now, it gets interesting when you talk about realtors paying themselves. Let’s say a realtor has no employees of their own, but they are out selling homes and earning commission. The realtor is essentially self-employed as a sole proprietor for tax purposes. From a tax perspective, this put the agent at a disadvantage, because all their earnings are subject not only to federal and state income taxes, but also self-employment taxes at a rate of 15.3%.
Until a realtor is netting at least $40K per year, they are pretty much stuck in this situation. But once they hit that $40K mark, that can open up a tax strategy that involves 1) setting up an S Corporation and 2) putting themselves on payroll as an employee of the corporation. They can then split their earnings between payroll salary (which is still subject to 15.3% payroll taxes), but the other portion is distributions, which is not subject to payroll or self-employment taxes.
Depending on a realtor’s performance and earning levels, the tax savings can add up to thousands of dollars each year.
This is really just scratching the surface, but hopefully it answers your main question that yes, payroll services can be used by realtors to their advantage. If you are talking to new agents, this kind of information is something they should have at their disposal. If they are just getting started in their careers, it might not be immediately relevant since they are still in the beginning stages of building their business, but for those who find some measure of success, this information is very valuable.