An independent contractor (loan originator or loan officer) that works in another’s mortgage broker business is not considered an employee. Independent contractors are subject to the B&O tax (and other business taxes) - employees are not. Various factors determine whether one is an independent contractor or employee.
Independent contractors generally:
- receive federal 1099 non-employee compensation (NEC) forms from the broker documenting their commissions/fees.
- are entitled to the gross income of the business.
- are liable for business losses and expenses.
- file a statement of business income and expenses (Schedule C) for income tax purposes.
- may employ others.
Independent contractors working with mortgage brokerage firms are taxable under the Service and Other Activities B&O tax classification on their gross commissions.
No deductions are allowed for costs of doing business or for amounts withheld from commissions. Below are examples of amounts commonly withheld from commissions that are not deductible:
- B&O tax
- desk rental
- office supplies
Registering your business
Independent contractors must register with the Department of Revenue unless they:
- Make less than $12,000 a year before expenses;
- Do not make retail sales;
- Are not required to pay or collect any taxes administered by the Department of Revenue.
To register your business with the Department of Revenue, complete a Business License Application.