Oppose Forced Withholding on Independent Contractors
June 30, 2009
A proposal to force those making payments to independent contractors to withhold 3% is making is making its rounds. This provision was included in a budget gap proposal approved earlier this week by a Budget Conference committee in the California legislature.
Here’s how the proposal would work:
When an agent closes a transaction, they are typically paid their commission by their broker. Now, the broker would need to withhold 3% of the commission and pay it to the Franchise Tax Board (FTB). Agents would still pay their normal quarterly estimated income tax payments to the FTB in addition to the withholding. When the agent files their state income tax return the following April, they will deduct the withholdings along with the quarterly estimated tax payments from their tax liability and, in theory, receive a refund for the 3% that was withheld.
3% doesn’t seem like much, but this proposal creates a pretty significant administrative burden that not only do brokers and independent contractors have to deal with, but it will create work for the state too which will offset any gains they will likely see from a 3% withholding.
You can do your part to stop this by calling your local assembly member and voicing your opposition to this proposal and ask that they keep it out of the next version of the state budget.
Don’t know who your local assembly member is? Visit this link and find out. After you’ve made the call, send this page to a fellow broker to have them make a call too so we can stop this silly nonsense.
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I will definitely call my local board. I am not in favor of this
There has similar talk in other areas of the country too about a tax on commission. The next question to be answered is will the independent contractor try and pass this fee along to the consumer. In a market that is difficult for all real estate people and companies, I wonder about the timing of something like this.