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What is a Statutory Employee?
Everything You Need to Know

The term “statutory employee” refers to an independent contractor who is treated as an employee for tax withholding purposes. A worker is considered a statutory employee so long as the employer and individual pay their share of Medicare and Social Security taxes, and meet certain other criteria.
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C.L. Mike Schmidt Published by C.L. Mike Schmidt

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What’s the Difference Between a Statutory Employee and an Independent Contractor?

Statutory employees are employees that are placed between “normal” employees and independent contractors. The difference is important for income reporting and calculation of tax purposes.

Statutory employees have special employment circumstances that require different income reporting rules so that their gross income is fairly determined. Independent contractors, on the other hand, are self-employed. The earnings of a person who is working as an independent contractor are subject to self-employment tax.

Statutory Employee Examples

According to the Internal Revenue Service (IRS), independent contractors who qualify for statutory employee status include:

  • Agent or commission-based drivers: A driver who either distributes non-milk beverages or meat, vegetables, fruit, or bakery products; or picks up and delivers laundry or dry cleaning.
  • Life insurance sales agents: A full-time agent who sells life insurance or annuity contracts, primarily for one company.
  • Home-based workers: An individual who works at home on materials or goods that you supply. The materials must be returned to you or to someone you select, and you must dictate how the work should be done.
  • Traveling or city salesperson: A full-time traveling or city salesperson whose primary business activity is working on your behalf. The salesperson turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar companies.

Related Article: When Not to Sign a Severance Agreement?

What are the Benefits of Being a Statutory Employee?

Statutory employees enjoy many benefits over common law employees. Receiving a W-2 means that their FICA taxes are already paid for by the employer. This means that statutory employees aren't required to pay self-employment taxes that independent contractors must pay. However, they are still responsible for income taxes. Statutory employees can also deduct the expenses they incur related to their employment.

Also Read: Work From Home Expenses

What Can You Deduct as a Statutory Employee?

A statutory employee is able to deduct their business expenses against their income, just like independent contractors. However, like common law workers, statutory employees only have to pay half of their Medicare and Social Security taxes since their employer is paying the other half.

Related Article: Employment Wages & Hour Dispute Lawsuits

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