How Commissions Are Taxed for Real Estate Agents & Brokers in 2025
Real estate agents and brokers earn money primarily through commissions, but that income comes with tax responsibilities. Unlike W-2 employees, most real estate professionals are independent contractors, meaning they must handle their own taxes. Here’s what you need to know about how commissions are taxed and how to reduce your tax burden in 2025.
1. Self-Employment Tax (SE Tax)
Real estate agents must pay self-employment tax, which covers Social Security and Medicare.
SE Tax Rate: 15.3% on net earnings
Who Pays It? Any agent earning over $400 per year.
Additional Medicare Tax: 0.9% on earnings exceeding $200,000 (single) or $250,000 (married filing jointly).
Example: If you earn $80,000 in commissions after deductions, your SE tax is $12,240 ($80,000 × 15.3%).
Tip: Consider forming an S Corporation (S-Corp) to reduce SE tax liability.
2. Federal & State Income Tax
In addition to SE tax, agents must pay federal income tax based on their tax bracket. Below are the 2025 federal tax brackets for single filers:
Taxable Income (Single)
Tax Rate
Up to $11,600 10%
$11,601 - $47,150 12%
$47,151 - $100,525 22%
$100,526 - $191,950 24%
$191,951 - $243,725 32%
$243,726 - $609,350 35%
Over $609,350 37%
State Taxes? Some states, like Texas & Florida, have no state income tax, while California can go up to 13.3%.
Tip: Set aside 25-30% of your earnings for taxes to avoid surprises.
3. Deductions to Lower Your Tax Bill
The IRS allows agents to deduct business expenses, reducing taxable income.
Common Deductions:
Vehicle Expenses: Mileage, fuel, and maintenance.
Home Office: A portion of rent, mortgage, and utilities.
Marketing & Advertising: Social media ads, business cards, and websites.
Continuing Education: Licensing renewals, training, and certifications.
Commission Splits: Payments to brokerages or team leads.
Example: If you earn $100,000 but claim $20,000 in deductions, you’re only taxed on $80,000.
4. How to Reduce Taxes Even More
✔ Make Quarterly Tax Payments – Avoid IRS penalties by paying estimated taxes in April, June, September, and January.
✔ Use an S-Corp – This structure can lower self-employment taxes significantly.
✔ Keep Detailed Records – Use QuickBooks or a tax professional to track expenses.
Final Thoughts
Real estate commissions are subject to self-employment and income tax, but strategic deductions and tax planning can help keep more money in your pocket.
📌Next Step: Talk to a tax professional to optimize your tax savings!