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January usually exposes every weakness a brokerage’s financial records may have, whether an agent changed brokerages halfway through the year, a referral fee was recorded outside of the regular commission process, a bonus was paid months ago, one of an agent's tax documents is missing, or accounting has one number, the commission spreadsheet has another. Now your team has to work backward through closed deals to find out why. This is when tax season gets much more difficult than it should be.
Brokerages in the United States and Canada can face similar issues with year-end reporting, as this time of the year means preparing 1099-NEC or T4A slips for those that your brokerage paid during the year. The rules regarding preparation of these documents vary between the two countries, but the operational challenges remain the same and having accurate payment records by the time the filing deadline arrives is a high priority.
Using a reliable real estate back office software system helps make this task less complicated, as commissions, referral fees, deductions, agent payments, and transaction history remain connected throughout the entire year. Instead of rebuilding 12 months of historical financial data in January, you review records that are already organized. Getting there starts earlier than tax season: accurate commission disbursement authorizations (CDAs) throughout the year are what make year-end reporting numbers trustworthy in the first place.
Below is what brokerage owners and accounting teams need to know.
Start With One Question: Who Did Your Brokerage Pay?
Before you even start filling out your tax forms, make sure you have a comprehensive listing of all of the people your brokerage compensated during the prior year. Sounds simple? Often it is. Often it isn’t.
Brokerages compensate many different types of professionals. These include agents, teams, independent brokers, referral partners, contractors, employees, vendors, and others who provide services. Not all payments belong on the same tax form.
First, determine who is an employee and who is a nonemployee. Once you know how to classify them, confirm the tax status of each recipient.
In the US, licensed real estate agents are generally treated as statutory nonemployees under federal tax law. When substantially all of their compensation is based on sales or other output, and their written contract with the broker states they won’t be treated as an employee for federal tax purposes, then such treatment applies.
Why does this matter? Because employee compensation belongs on Form W-2, while qualifying nonemployee compensation is generally reported on Form 1099-NEC.
Canada has its own set of regulations regarding classifications. Employee commissions are usually reported on a T4. Self-employed workers' commission income is reported on a T4A.
Getting this classification right comes before calculating anything else.
Who Needs a 1099-NEC in the United States?
For payments made during 2026, a business generally files Form 1099-NEC when it paid $2,000 or more for services to someone who was not its employee.
The importance of this $2,000 number can’t be overstated. The federal threshold was $600 for payments made before 2026, which is why many older checklists and tax articles still use the old amount. The threshold increased to $2,000 for payments made after December 31, 2025. For years after 2026, the threshold is set to adjust for inflation.
Nonemployee compensation reportable by brokerages includes:
- Commissions paid to qualifying nonemployee agents
- Bonuses or incentives paid for services
- Referral fees paid to nonemployees
- Fees paid to independent contractors
- Other compensation for services provided to the brokerage
IRS instructions specifically include commissions and professional referral fees within nonemployee compensation when the reporting requirements are met.
Don’t simply review the last payment for the year. Your obligation is to collect all reportable compensation received from each recipient throughout the entire calendar year.
Who Doesn’t Normally Receive a 1099-NEC?
Not every person and companies that your brokerage makes payments to needs a 1099-NEC.
Employers do not. Employment income (wages, employee bonuses, and other types of compensation) is typically reported on Form W-2.
Payments to corporations are also generally exempt from Form 1099-NEC reporting, although important exceptions exist, including certain payments for legal services. An LLC name alone doesn’t tell you whether the corporate exemption applies because an LLC can have different federal tax classifications.
That is why collecting a completed Form W-9 before payment is beneficial. The Form W-9 provides your accounting staff with the recipient's full legal name, Taxpayer Identification Number (TIN), and their federal tax classification.
The payment method used also impacts what needs to be reported. Credit card transactions and many third-party payment network transactions will be subject to IRS reporting requirements under Form 1099-K, and these same amounts generally shouldn’t be reported again on a Form 1099-NEC by the business making the payment.
This is where rushed year-end reviews create duplicate reporting. Your team sees a payment in the accounting system, assumes it belongs on a 1099, and reports it without checking how it was paid or how the recipient is classified.
Pay Close Attention to Referral Fees and Bonuses
Referral payments deserve extra attention in a real estate brokerage because sometimes a referral can pass through the brokerage as part of a transaction, go to another agent, or go to another brokerage. The payment can also sit outside the normal commission workflow if someone entered it manually. That creates an easy place for year-end totals to go wrong.
For US reporting, the IRS includes fees paid by one professional to another, including referral fees, among examples of reportable nonemployee compensation when the other requirements are met.
Bonuses also need the right treatment, since a bonus paid to an employee belongs with employee compensation. A payment made to a nonemployee for services can form part of nonemployee compensation.
Your year-end process should therefore review the reason for each payment, not just the label used in your accounting software. “Bonus,” “referral,” or “other” doesn’t determine the tax treatment by itself.
The 1099-NEC Deadline Comes Fast
Form 1099-NEC normally has a January 31 deadline for both filing with the IRS and providing the form to the recipient, whether the IRS filing is made on paper or electronically.
When January 31 falls on a weekend or applicable legal holiday, the deadline moves to the next business day. For 2026 payments, January 31, 2027 falls on a Sunday. That moves the federal deadline to Monday, February 1, 2027.
Waiting until late January leaves almost no room for missing W-9s, incorrect taxpayer identification numbers, duplicate agent records, or commission totals that don’t match your books.
Errors also have a real cost. For information returns required to be filed in 2027, federal penalties generally start at $60 per return when corrected within 30 days. They rise to $130 at the next penalty level and $340 under the general late or incorrect filing rule. Separate penalties can apply for failing to provide correct statements to recipients. Intentional disregard carries much larger penalties.
A small data problem repeated across dozens of agents stops being small very quickly.
Canadian Brokerages Need to Prepare T4As
Canadian brokerages have a different form, but face many of the same recordkeeping problems.
The T4A reports several types of income, including commissions paid to self-employed workers. The CRA instructs payers to report commissions paid to an independent agent in Box 020, Self-employed commissions. GST, HST, and provincial sales taxes paid on those services are not included in the amount reported in Box 020.
Under the CRA’s current administrative policy, a T4A generally needs to be issued when reportable payments to a recipient exceed $500 during the calendar year or when tax was deducted from a payment, subject to the specific rules and exceptions for the type of income involved.
Fees for services can fall under Box 048 rather than Box 020. That distinction becomes important when your brokerage pays contractors or businesses for services outside an agent commission relationship.
For nonresidents providing services in Canada, different reporting rules can apply, including use of the T4A-NR.
Don’t force every payment into the same category. Review unusual payments with your accountant before filing.
When Are T4As Due?
T4A information returns are generally due by the last day of February following the calendar year being reported. If that date falls on a Saturday, Sunday, or recognized holiday, the deadline moves to the next business day. For the 2026 calendar year, February 28, 2027 falls on a Sunday. That makes Monday, March 1, 2027 the next business day.
Canadian brokerages also need to pay attention to how they file to avoid additional penalties. If you file more than five information returns of a type for a calendar year, the CRA requires electronic filing.
Late filing penalties depend on how many T4A slips your brokerage files late and how long they are overdue. The CRA applies a minimum penalty of $100. Under its administrative policy for smaller filings, 1 to 5 late T4A slips result in a $100 flat penalty. For 6 to 10 slips, the penalty is $5 per day, up to $500. For 11 to 50 slips, it is $10 per day, up to $1,000. Penalties increase for larger filings.
The CRA also states that late distribution can result in a penalty of $25 per day per slip, subject to a $100 minimum and $2,500 maximum.
Again, clean records are cheaper than corrections.
Your Brokerage Year-End Reconciliation Checklist
The best time to find a tax reporting problem is before you generate the forms. Before filing, work through the following review.
1. Confirm every agent’s legal name and tax information
Make sure US contractors have current W-9 information. Confirm the information required for Canadian recipients as well. Don’t rely on a nickname, team name, or old profile.
2. Reconcile total commissions paid
Compare your commission records with your accounting system and actual payments. The totals should match.
3. Review referral fees separately
Make sure every referral is connected to the correct recipient and transaction. Look for referrals processed outside your normal deal workflow.
4. Check bonuses and incentives
Confirm whether the recipient was an employee or nonemployee and whether the payment was compensation for services.
5. Review adjustments, reversals, and repayments
Deals fall apart, payments get corrected, commission calculations change… Make sure the year-end total reflects the final financial record rather than the first number entered.
6. Check recipient tax classifications
For US payments, verify which recipients qualify for the corporate exemption and which require a 1099-NEC. Don’t guess based on the business name.
7. Review payment methods
Identify payments processed through credit cards or qualifying third-party networks so the same income is not reported twice.
8. Check Canadian sales taxes
For self-employed commissions reported in T4A Box 020, make sure GST, HST, and provincial sales taxes are not included in the reported commission amount.
9. Look for duplicate records
One agent can appear under a personal name, team name, previous brokerage profile, or updated company name. Merge the financial picture before preparing the slip.
10. Tie your final tax totals back to your books
Do one final control check. The tax reporting data should reconcile with the financial records your brokerage uses to report its own results.
Make January a Review Month, Not a Recovery Mission
The hardest part of preparing 1099s and T4As is rarely filling in the form. The hard part is actually reconstructing the year.
When commission information lives in spreadsheets, referral fees sit in separate files, adjustments appear in email threads, and agent details are stored in several systems, January becomes an investigation, and your team has to reopen old deals only to explain numbers that should already be clear.
That is exactly where real estate back office software earns its place in the process. Loft47 keeps transaction and commission information connected, including commission structures, referral fees, deductions, payouts, and financial records. Agents can also access their own tax forms, including 1099s and T4As, through the agent portal.
The real benefit shows up long before tax forms are due.
When every deal is recorded correctly as it closes, your year-end process becomes much easier and faster. You review totals, correct the few exceptions, and file, instead of searching 12 months of spreadsheets to figure out where a number came from.
Rather than more work in January, the goal for tax season is better records all year.
Disclaimer: This article is for informational purposes only. Tax reporting rules can depend on worker status, entity structure, payment type, jurisdiction, and other facts. Brokerages should confirm their filing obligations with their accountant or tax professional before submitting information returns.
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