Are referral fees considered compensation?

Key Takeaways Referral fees may be paid between licensed real estate agents as compensation for finding clients, properties, or closing deals. Non-licensed individuals, however, cannot receive referral fees based on state and federal law.

How do referral fees work?

A referral fee is a type of commission paid to the coordinator in a transaction—a person responsible for bringing a customer to your business. Sometimes, this fee is paid in exchange for the business introduction, but more often, it is tied directly to a sale.

Is finder’s fee legal?

A finder’s fee isn’t legally binding, so it is often simply a gift from one party to another. This is commonly seen in real estate deals. If someone is selling their home and their friend connects them with a potential buyer, the seller might give their friend a small portion of the sale when the deal is finalized.

Is a referral fee self employment income?

Yes, these finder’s fees are taxable. Generally speaking, all income is either investment income, employment income, or self-employment income. You’ll end up filing a Schedule C to report income from a business and Schedule SE to calculate the self-employment tax due on your finder’s fees.

Do you need a license to be a referral agent?

In order to earn income as a referral agent, you must be licensed and affiliated with a brokerage firm that can receive and process the commissions you earn from making referrals. If you have passed your exam, you may affiliate with a referral brokerage firm immediately to activate your license.

How do I get a referral fee?

If you’re going to ask for or receive a referral fee, put it in writing. A one-page letter of agreement works best. State the reasons, the rate, and the terms. If someone is referred, but does not sign and no work is done, should you pay a fee or not?