Referral fees are how a licensed broker who isn’t practicing can still earn money from real estate. They’re simple once you know the rules, and the rules matter: get them wrong and the fee can’t legally be paid.

What a referral fee is

A referral fee is a share of another agent’s commission, paid to you for sending them a client. In Illinois, referring leads for pay is licensed activity: the License Act’s definition of a broker includes anyone who, for compensation, assists in “procuring or referring of leads or prospects.” That’s why you need an active license to earn one.

How the money moves

1. You refer a client to an agent and agree on the referral fee, usually a percentage of that agent’s commission.
2. The deal closes and the agent’s brokerage receives its commission.
3. The agent’s brokerage pays your sponsoring brokerage the referral fee.
4. Your brokerage pays you your share.

It has to go brokerage to brokerage. The Act says “no licensee shall pay compensation directly to a licensee sponsored by another sponsoring broker,” and that “one sponsoring broker may pay compensation directly to another sponsoring broker.” It also says a sponsored licensee may accept compensation only from their own sponsoring broker.

Who can pay and receive referral fees

On unlicensed people, Illinois rules are direct: “No licensee may pay a referral fee to an unlicensed person who is not a principal to the transaction.” The person receiving it must be licensed in Illinois or hold “an equivalent license of another state or country of domicile.”

The inactive-license rule is covered in detail in can you earn referral fees with an inactive license?

The math

Illinois law doesn’t set referral fee amounts. You and the receiving agent agree on a percentage of that agent’s commission. Here’s a typical example:

Put the agreement in writing before the client ever talks to the agent. Illinois rules don’t explicitly require a written referral agreement, but a short written agreement naming the client, the percentage and both brokerages prevents almost every referral-fee dispute.

Do you have to tell the client?

Generally, no. As Illinois REALTORS has pointed out, the License Act doesn’t currently require disclosing broker-to-broker referral fees to the client. There are two exceptions written into the law:

• Dual agency withdrawals. If a client withdraws from dual agency and you refer them to another licensee, you can’t receive a referral fee “unless written disclosure is made to both” clients.
• Businesses you own. If you refer a client to a business in which you have more than a 1% ownership interest, you must disclose it, in writing.

Many brokers disclose referral fees anyway. It builds trust and costs nothing.

Referral fees and RESPA

RESPA, the federal law that limits kickbacks in home sales, allows broker-to-broker referral fees. Its rules specifically permit “a payment pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and real estate brokers.” That exemption applies only “when all parties are acting in a real estate brokerage capacity.”

That last part matters if you’ve moved into mortgage, title or insurance. RESPA and your employer’s own policies can bar you from taking referral fees in those roles, even with an active license. Check with your employer first.

Out-of-state referrals

You can refer an Illinois client to a licensed agent in another state, such as a parent retiring to Arizona. The receiving agent’s brokerage pays your Illinois sponsoring brokerage, which pays you. The other state’s rules govern their side of the payment, so the receiving agent should confirm it’s allowed where they are.

Taxes: what to expect

Referral fees are taxable income. If your brokerage pays you as an independent contractor, it reports the payments on Form 1099-NEC. The IRS lists “fees paid by one professional to another, such as fee-splitting or referral fees” as reportable.

The reporting threshold changed recently. For payments made in 2026 and later, the threshold is $2,000, up from $600, under P.L. 119-21. Even if you don’t receive a 1099, the income is still taxable. Talk to a tax professional about your situation.

Frequently asked questions

Can a real estate agent pay a referral fee directly to another agent in Illinois?

No. The License Act says no licensee may pay compensation directly to a licensee sponsored by another broker. One sponsoring broker pays the other, and each brokerage pays its own licensee.

Can I pay a referral fee to someone who isn’t licensed?

No. Illinois rules say no licensee may pay a referral fee to an unlicensed person who isn’t a principal to the transaction. The person receiving it must be licensed in Illinois or hold an equivalent license from another state or country.

Do I have to tell my client about a referral fee?

Generally no. Illinois law doesn’t currently require disclosing broker-to-broker referral fees. Two exceptions: when a client withdraws from dual agency and you refer them to another licensee, and when you refer a client to a business you own more than 1% of. Both require written disclosure.

Is a referral fee allowed under RESPA?

Yes, between brokers. RESPA’s rules specifically allow payments under cooperative brokerage and referral arrangements between real estate agents and brokers, when everyone involved is acting in a real estate brokerage capacity.

Will I get a 1099 for referral fees?

If your brokerage pays you $2,000 or more in a year, it generally must report it on Form 1099-NEC. That threshold rose from $600 for payments made in 2026 and later. Talk to a tax professional about your situation.

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