What does statutory employee mean?

According to the law, a statutory employee is an employee who works for a business, but the employer is not required to deduct taxes from their income. However, the employer is required to deduct Medicare and Social Security taxes from their pay.

This type of employee is usually considered to be someone who has less control over their work than an independent contractor, but more freedom over their work than a common law employee. They are somewhat like an independent contractor who is treated as an employee with regard to certain tax deductions.

Statutory employees can deduct work-related expenses on an IRS Schedule C form instead of a Schedule A form. Expenses reported on a Schedule C form do not have the same 2 percent adjusted gross income limitation as Schedule A forms. This allows statutory employees to claim a greater tax deduction on business expenses than those who use a Schedule A form.

A statutory employee must agree on this status with their employer when they are hired. The employee will need to sign a service contract. This type of employee should not be confused with a statutory non-employee, a category that includes direct sellers and real estate agents.

Who qualifies as a statutory employee?

An employee must meet three different criteria to be considered statutory. First, all of the work must be performed by the employee personally. Second, the individual cannot make a large investment in the tools and property used to perform their job. Finally, their work must be for one employer on an ongoing basis.

People who fall into the category of statutory employees may perform a variety of jobs. For example, someone who works from home using supplies borrowed from the employer may be a statutory employee. A driver who delivers food and does laundry for a commission may also be considered a statutory employee. Another example of a statutory employee may be a traveling salesperson or someone involved in insurance sales.

Generally, statutory employees invest in their own work facilities. They usually do not play any significant role in the company and may not even have a permanent position in the company.

If you're unsure about your status, your W2 will help you confirm it. Although some workers may seem to be in a gray area in terms of their employee designation, ultimately, any employee who receives a W2 form with box 13 checked for ""statutory employee"" will be considered as such by the government.

Do statutory employees get a W2?

Most independent contractors receive a 1099-MISC form each year detailing what they were paid the previous year, but a statutory employee does not. Instead, a statutory employee will receive a W-2 form with Box 13 checked for “statutory employee.” If the employee wants to deduct business expenses, such as mileage from business-related travel, he or she must file a Schedule C during tax season.

Can a statutory employee contribute to a SEP?

Most self-employed individuals can qualify for a SEP, also known as a Simplified Employee Pension Plan. Statutory employees are included in this category, which means they can contribute to a SEP if their employer offers a plan, and if they meet these three requirements:

• The employee is 21 years of age or older.
• The employee has worked for the employer for at least 3 out of the last 5 years.
• The employee earned at least $600 in wages in a calendar year.

Are statutory employees eligible for benefits?

Employers typically pay half of Medicare and Social Security taxes for statutory employees. But in general, most statutory employees don't receive traditional benefits from their employer. Employees who receive benefits such as health insurance, vacation time or a 401(k) plan are generally considered common-law employees. Your  pay stub  should specify how your employer is handling taxes and deductions.

The more benefits an employee receives from his or her employer, the more likely he or she is a common-law employee. Statutory employees have the benefit of being treated like an independent contractor for income tax purposes, while also being treated like a common-law employee for Social Security and Medicare tax purposes.