Statutory Employee

What Is a Statutory Employee?

The term statutory employee alludes to a independent contractor who is treated as an employee for tax withholding purposes. A worker is viewed as a statutory employee as long as the employer and individual pay their share of Medicare and Social Security taxes and meet certain criteria.

The employee is also allowed to file claims for expenses incurred while at work. individuals who fall into this category incorporate drivers and full-time insurance sales agents. Statutory employees receive form W-2 from their employer to file their annual tax returns.

Understanding Statutory Employees

The category statutory employee alludes to a Internal Revenue Service (IRS) classification of workers who are subject to tax withholding by statute under its common law rules. While employers are not permitted to withhold taxes for most independent contractors, they can for an employee who meets the following criteria:

• The employee performs virtually all of the services as stated or implied by the employment contract.
• The employee has no major investment interest in company hardware/property used to perform the services.
• The employee performs the services continually for the same employer.

Anyone who falls into this employee class may also deduct work-related expenses on Schedule C instead of Schedule A when they file their annual tax returns. Statutory employees are granted a greater tax deduction for their business expenses than different employees because Schedule C expenses are not subject to the 2% adjusted-gross-income threshold as are expenses on Schedule A.

Statutory employees generally don't qualify for the same benefits offered by employers to their full-time workers. For instance, an individual who falls into this category may not be eligible for retirement benefits, health insurance coverage, or vacation pay. Statutory employees who receive these benefits may be viewed as regular employees.

There are no statistics that show the number of taxpayers who file as statutory employees.

Statutory Employee Criteria

According to the IRS, the following individuals fall under the category of statutory employee:

• Drivers who deliver food and beverages (other than milk), dry cleaning, or laundry
• Individuals who sell life insurance or annuity contracts on a full-time basis for the same insurance company
• Individuals who work from home and use supplies that are borrowed from their employers
• Traveling salespeople who work full-time for and liaise orders with wholesalers, retailers, contractors, or different establishments for one company.

In the event that you're uncertain of whether you're viewed as an independent contractor or a statutory employee, you can get additional details from the IRS by accessing Publication 15-An Employer's Supplemental Tax Guide. This document characterizes employees compared to independent contractors with respect to tax-withholding rules.

Statutory employees are frequently viewed as a blend of employee and business.

Statutory Employee Tax Information

A statutory employee is anyone who pays half of the contribution to Medicare and Social Security. These two taxes are by and large known as Federal Insurance Contributions Act (FICA) taxes and are separated as follows:

• Social Security contributions: 6.2% for the employer and the employee for a total of 12.4%.
• Medicare contributions: 1.45% is contributed by the employer and the employee for a total of 2.9%.

This brings the total of all FICA tax contributions to 15.3%.

As verified above, This class of employees receives a W-2 from their employer, who checks off Box 13. They don't receive Form 1099-MISC as this document is shipped off independent contractors.

Statutory employees are able to deduct their expenses the same way a business would — on a Schedule C. This form allows individuals to report their income along with eligible [expenses](/cost, for example, advertising, office expenses, travel, and taxes.

They are also responsible for paying their own income taxes each year, which means that employers don't withhold federal, state, or local income taxes. As such, these employees ought to be prepared to make regular tax installments of a lump-sum payment when taxes are due.

Hiring and Paying a Statutory Employee

Hiring a statutory employee isn't any not quite the same as hiring any other employee. An employer offers the individual a contract with employment and payment terms. There are slight differences when it comes to the way these employees are paid compared to traditional employees. Employers generally pay these individuals in any form, like commissions, by piece, or specific wages.

Employees have to finish up Form W-9: Request for Taxpayer Identification Number and Certification rather than a Form W-4: Employee's Withholding Certificate. A W-9 affirms the employee's personal information and taxpayer identification number (TIN), which is generally somebody's Social Security number (SSN).

Statutory Employee versus Independent Contractor

As noted earlier, statutory employees typically work for one company, which makes them somewhat unique in relation to independent contractors. These individuals offer their services to businesses and others. They are in many cases self-employed. As such, they are fully responsible to pay their own income taxes to the federal, state, and local legislatures, along with the full amount due for FICA taxes.

Individuals who fall under the independent contractor category incorporate dental specialists, handymen, electricians, other tradespeople, and building contractors. Freelancers in certain industries may also be considered independent contractors, like journalists and hairstylists.

Features

• Statutory employees can also deduct work-related expenses on Schedule C when they file their annual tax returns.
• A statutory employee is an independent contractor who is viewed as an employee for tax withholding purposes.
• Employers send statutory employees W-2s instead of 1099-MISCs.
• An individual must meet certain criteria to be viewed as a statutory employee.
• Companies that want to hire statutory employees offer them contracts, payment terms, and must obtain a W-9 instead of a W-4.

FAQ

Do Statutory Employees Get W-2s?

Statutory employees receive a W-2 at the same time different employees do, which is at the finish of January. These are required for individuals to file their annual tax returns. In contrast to different employees, however, the W-2s of statutory employees have Box 13 verified.

Can a Statutory Employee Contribute to a SEP?

A statutory employee can add to a simplified employee pension (SEP) plan as long as their employer offers one and are beyond 21 three years old, throughout the previous three years out of five, and earned at least $600 in the last calendar year.

What Are the Benefits of Being a Statutory Employee?

There are certain advantages to working as a statutory employee. Getting a W-2 means that a portion of their taxes are already paid for by the employer — notably the FICA taxes. This means that these employees aren't subject to self-employment taxes that independent contractors must pay. However, they are as yet responsible for income taxes. These employees can also deduct the expenses they cause related to their employment.

Are Statutory Employees Eligible for Benefits?

Statutory employees are not eligible for the same benefits that regular employees receive. This incorporates anything related to health care, retirement, or vacation time.