Monihan: Officer Status Made Real Estate Commissions Wages Under New Jersey Tax Law

A written independent-contractor agreement governed one relationship without determining the taxpayer’s New Jersey income-tax category. In Estate of Michael R. Monihan and Holly P. Monihan v. Director, Division of Taxation, No. 012125-2021 (N.J. Tax Ct. Jan. 14, 2026), the court upheld treating a corporate officer’s real estate commissions as wages, eliminating the business-expense deductions claimed against them.

The opinion was approved for publication in the New Jersey Tax Court Reports. It applies New Jersey gross income tax law, rather than a California worker-classification rule.

Salary, commissions and ownership income came from the same business

Michael Monihan owned half of an S corporation realty business and served as president, treasurer and broker of record. He also performed sales and rental work. A 1989 agreement between him and the company designated an independent-contractor relationship for that activity.

For 2016–2018, the company reported an annual $41,600 salary, separate commissions on Forms 1099 and ownership income on Schedule K-1. The returns treated the commissions as business income and claimed substantial expenses against them. The Division reclassified the commissions as wages and disallowed those deductions. The dispute concerned the legal character of the commission income, not whether the tax forms bore different labels. Monihan, official opinion at 4–9.

The taxpayers relied on the Brokers Act and Kennedy

The taxpayers argued that the Real Estate License Act’s independent-contractor provisions controlled despite contrary law. They relied on Kennedy v. Weichert Co., 257 N.J. 290 (2024), which addressed the effect of a written agreement on classification under New Jersey’s Wage Payment Law.

The Tax Court examined the language and history of the Brokers Act alongside the gross income tax scheme. It found that the licensing and wage-payment provisions did not displace the separate tax treatment of corporate officers. The statutes could address different legal relationships without requiring the agreement to control every tax consequence. Monihan at 10–24.

The tax regulations made officer status consequential

The court applied N.J.A.C. 18:35-7.1(e)(1), governing corporate officers as employees for gross income tax purposes, and the related rules on remuneration and income categories. Calling the sales activity independent contracting did not remove the officer’s commissions from the wage category.

That classification determined the deductions. New Jersey’s gross income tax system treats its income categories separately; the taxpayers could not offset wages with the Schedule C expenses claimed as though the commissions were independent business profits. A taxpayer’s federal reporting or a contract label did not resolve that state-law question.

The alternative factual analysis supported the same result

The court also examined the relationship under the regulatory employment factors. The company supplied office space, support, equipment and other business resources, including insurance and licensing or association dues. The taxpayer could not show that he reimbursed the company for those benefits and services. The relationship was longstanding and tied to the same enterprise. Those facts supported employment treatment even apart from the officer rule.

Kennedy also involved a different role and statutory setting. Monihan was an owner and corporate officer as well as a salesperson. Preserving those facts explains why a general statement that an independent-contractor agreement is effective would not answer the tax dispute. Monihan at 24–34.

The Director prevailed on the cross-motions

The court granted the Director’s cross-motion for summary judgment and denied the taxpayers’ motion. The commission reclassification and associated deduction disallowance stood under the New Jersey rules applied.

Our separate guide explains organizing officer salary, commissions and ownership income for review. It keeps the New Jersey issue distinct from the California and federal rules a current taxpayer may also need to address.