Here are the tests for 1099 versus W-2

This first link is from the IRS web site. You will note that it covers just about every single situation you can think of. You will also note that on the independent contractor page it does not mention mortgage loan originators, while it does mention realtors. That is important. The difference between us is Dodd Frank and the Safe Act regulations. The meltdown of 2008-2009 caused us to become “special”.

The second link takes you to the Department of Labor and its classification of mortgage loan originators as employees. Lots of information here. Look at the third paragraph down. Not exempt, are employees.

Just to repeat – the minute you are sponsored by a Broker Business or a Lender, you are an employee. That was the one of the most important motivations for the passing of Dodd Frank. SUPERVISION.

The Department of Labor and the MBA fought this all the way to the Supreme Court. See second paragraph down. Mortgage Loan Originators lost. The Department of Labor won.

The fourth ink will answer the question about owners. Such as – how can an owner pay themself, do they need to be W-2? Do they need to pay self-employment taxes? The answer is probably, but especially yes if they are taking commissions deal by deal and the CFPB requires them to have a comp plan exhibit because of that.

Distributions are the big myth here. Distributions are exempt ONLY if the distribution is a bona fide return of paid in capital. Otherwise, distributions are also taxable.

So here is the final link for you owners to consider. This is also from the IRS.

Finally, yes we know all about those NMLS entities that proudly proclaim you will be treated as a 1099. That is their business decision, it is based on their appetite for risk, and it is not a justification for a small broker or lender to fall in behind them and risk losing everything if caught in a tax avoidance scheme.

If you Broker Businesses and small Lenders are still thinking about paying NMLS MLOs as 1099s when per DF and the Safe Act you sponsor them as an NMLS MLO, please think again.

Thats it for now.

Nelson A. Locke, Esq.

(800) 656-4584

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