If you operate a real estate business and compensate agents with commissions after they sell or lease a property, you may have to report those payments on a 1099-MISC form. Your obligation to prepare the 1099-MISC depends on whether the agent is an employee or a contractor. Also relevant to whether you have to report real estate commissions is the total amount of all payments the agent receives from you during the year.

Employee & Contractor Agents

When you hire a real estate agent as an employee, you won't use Form 1099-MISC to report their commission earnings. Instead, you'll report all commission payments, as well as all other types of taxable compensation, on a W-2 form. For employees, you have to withhold income and employment taxes from their commission checks as well. If your real estate agents all work as contractors – meaning they're self-employed – reporting the commissions on Form 1099-MISC may be required, depending on the total payments you make in a single tax year.

$600 Or More

Once the tax year closes, you'll need to determine how much your business paid out in commissions to each agent. This is because reporting commissions on the 1099 isn't required unless the annual total is at least $600. It doesn't matter how small each separate payment is -- the total is what's important. For each real estate agent who earns $600 or more in commissions, you'll report the annual total in box 7 of the 1099-MISC -- which is reserved for reporting all non-employee compensation payments.

Filing Requirements

There are some deadlines to keep in mind when you have to file Form 1099-MISC to report agent commissions. By January 31 -- only one month after the tax year ends -- you'll need to send each agent a copy of their 1099. You also need to file the form with the Internal Revenue Service by the last day of February if you are mailing a paper copy, or by March 31 if you're able to file the 1099 forms electronically. If you need additional time to complete the information returns, a 30-day extension is available if you prepare Form 8909 and get it to the IRS by the original 1099-MISC filing deadline.

Form 1099-MISC Penalties

In the event you don't furnish a copy of the 1099 to a real estate agent by January 31 or fail to file the form with the IRS by the deadline, you may get hit with penalty charges. Unless you have reasonable cause, the minimum penalty for missing the IRS deadline is $30 for each 1099-MISC that's filed no more than 30 days after the deadline. If you don't file within the 30 days, the penalty increases to $60 if you file it by Aug. 1 or $100 if after Aug. 1. And for each 1099-MISC you fail to furnish to your real estate agents by the deadline, the same penalty scheme applies, and is in addition to any penalties you may owe for failing to file with the IRS.