What Are Statutory Employees?
A statutory employee is a specific type of employee defined by law for social security, Medicare, and FUTA tax purposes.
Individuals who fall within any one of the following four categories and meet the three conditions described under Social Security and Medicare Taxes and who are classified as independent contractors under common law rules, may be treated as employees by statute (statutory employee) for certain employment tax purposes .
The four categories include:
- A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.
- A driver who distributes beverages (other than milk) or meat, vegetables, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission.
- Homeworkers whose work is carried out according to guidelines set by the person or company for whom the work is being done. Materials may be furnished by and returned to that person or company or to someone that person designates.
- A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business operation. The work performed for you must be the salesperson's principal business activity.
Social Security and Medicare Taxes
If all three of the following conditions apply, withhold Social Security and Medicare taxes from the wages of a statutory employee:
- The service contract states or implies that substantially all the services are to be performed personally by this person.
- This person does not have a substantial investment in the equipment and property used to perform the services (other than an investment in transportation facilities).
- The services are performed on a continuing basis for the same payer.
See the Salesperson section in Publication 15-A, Employer's Supplemental Tax Guide (PDF) for more information.
Withholding Taxes for Statutory Employees
An employer is required to withhold the following federal taxes from a statutory employee's gross pay:
- Income taxes
- Social security taxes
- Medicare taxes
Form W-2 must be issued to statutory employees.
- Box 13 of Form W-2 must be checked off to indicate that the employee is a statutory employee.
- For electronic filing of Form W-2, visit: www.socialsecurity.gov/employer
Statutory Employees Have Two Options for Reporting Income
- Form 1040:
- If the statutory employee has no expenses to deduct, income is reported directly on Form 1040.
- Schedule C:
- If the statutory employee has expenses to deduct, Schedule C may be completed to report income and related expenses.
- Net income from Schedule C is carried to the front of Form 1040.
Need to File Your Personal or Small Business Taxes?
File your personal and small business taxes (Schedule C)
- Return to the Hiring Workers Table of Contents to find related links