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Classifying Workers

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What Are Statutory Employees?

A statutory employee is a specific type of employee defined by law for social security, Medicare, and FUTA tax purposes.

Statutory Employees Include:

  1. Full-time life insurance salespersons who sell primarily for one company.
  2. Traveling salespersons who work full-time for one firm or person getting orders from customers.
  3. Agent (or commission) drivers who deliver food, beverages (other than milk), laundry, or dry cleaning.
  4. 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.

Withholding Taxes for Statutory Employees

An employer is required to withhold the following federal taxes from a statutory employee's gross pay:

Form W-2 must be issued to statutory employees.

Statutory Employees Have Two Options for Reporting Income

  1. Form 1040:
    • If the statutory employee has no expenses to deduct, income is reported directly on Form 1040.
  2. 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.

Next:

Classifying Workers: What Are Statutory Nonemployees? Withholding Taxes; Schedule C and Self-Employment Taxes for Statutory Nonemployees

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