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Obamacare Regulations Recognize Agents as Non-Employees

April 11, 2014

Recently released final regulations under the Affordable Care Act (ACA) recognize “qualified real estate agents” as non-employees for purposes of the “Shared Responsibility for Employers” provisions of the new health care law.  Earlier proposed regulations were silent on their status, leaving some doubt as to whether brokerages might have to count agents as employees for purposes of the ACA.  The change was requested by the NAR in a comment letter sent by 2013 President Gary Thomas last March.

The significance of the change to the final regulations is that larger employers (those with 50 or more full-time employees), which are subject to the Obamacare provision requiring such employers to offer affordable health coverage to their employees or pay a “tax,” will not have to count qualified real estate agents as employees for this purpose.

With the clarifications included in the final regulations, brokerage firms that contract the services of qualified real estate agents will not have to be concerned whether such agents might be construed as employees under a common law test.

Background.  The Affordable Care Act provides that “applicable large employers” must offer to their full-time employees health coverage that is affordable and provides a minimum standard of value.  “Applicable large employers” are defined as those with 50 or more full-time employees, including full-time equivalent employees, during the prior year.  For purposes of defining who an employee is under the statute, proposed regulations released by the Treasury Department and Internal Revenue Service on January 2, 2013, provided that a common law standard would be used for defining the term “employee.”  Such a common law standard does not recognize the special status granted under the tax law to “qualified real estate agents,” which under section 3508 of the Internal Revenue Code are considered to be non-employees (i.e., independent contractors) for all purposes of the tax law.

In his comment letter, President Gary Thomas pointed out that under the existing federal tax law, real estate agents are not to be considered employees for any purpose and therefore urged that the final regulations should explicitly exempt such agents from any common law standard.

The stakes for “large employers” under the new law can be high.  Starting in 2015, failure of a large employer to provide health coverage to at least 95 percent of its full-time employees can result in the assessment of a payment to the Treasury equal to the number of full-time employees (less 30) multiplied by $2,000.  Even if an employer were to fall just short of the 95 percent threshold, it could be assessed the full amount.  Thus, the determination of the number of full-time employees for employers is significant.

NAR’s Comment Letter to the IRS