From the real estate agent’s point of view, federal tax law would allow them to deduct their ordinary and necessary business expenses before calculating their income tax bill for the year. If rebating part of the commission is an accepted and ordinary business practice in your area, then it would be deductible as an ordinary business expense and there is no reason for the real estate agent to pay income tax on the amount that was rebated to you.
In fact, when I purchased my new home after relocating for work, I participated in an arrangement where, if I used my employer’s preferred real estate agent, the agent would rebate me a portion of the commission, and this occurred by check 30 days after the closing. It was certainly not illegal in my state, and it does not require that the real estate agent pay income tax on the full commission, because the rebate is deductible to them as a business expense.
If you have a contract in writing that says the agent must pay you a certain amount, that should be enforceable, as long as the arrangement is legal in your state. The agent will not be out any tax money by paying you the full amount, if they have their taxes prepared by a competent preparer. If the agent refuses to honor their contract, you may want to contact the real estate licensing board in your state. If the agent offered you a contract with illegal terms, you may also want to contact the state real estate licensing board.
