What Is a Statutory Employee on a W-2 Form?

A statutory employee is a self-employed worker classified as an employee for tax withholding purposes, receiving a W-2 instead of a 1099-MISC. These workers can deduct business expenses on Schedule C but typically do not receive traditional employee benefits like health insurance or retirement plans.

By Douglas Wade, Attorney

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Table of Contents

1. What Does It Mean to Be a Statutory Employee?

2. Which Workers Are Considered Statutory Employees?

3. What are the requirements for statutory employees?

4. Information Relating to Statutory Employee Taxes

5. A Guide to Employing and Paying Statutory Employees

6. Independent Contractor vs. Statutory Employee

7. In Conclusion

What Does It Mean to Be a Statutory Employee?

A statutory employee is a self-employed person who is considered to be an employee for the purposes of tax withholding. Any worker who satisfies specific requirements and who pays their fair part into Medicare and Social Security is termed a statutory employee.

The worker might also request reimbursement for costs paid for while on the clock. Drivers and insurance agents who work full-time are examples of people that fit this description. Employers are required to provide their workers with a W-2 form so that they may complete their yearly tax returns.

Important Highlights

A “statutory employee” is a self-employed person who is treated like an employee for tax reasons.
A person is not automatically designated a statutory employee unless they fulfill specific requirements.
When filing their yearly tax returns, statutory employees can also claim work-related expenses on Schedule C.
Instead of 1099-MISCs, employers issue W-2s to statutory workers.
In order to employ statutory workers, businesses must provide them with contracts, payment terms, and a W-9 form rather than a W-4.

Which Workers Are Considered Statutory Employees?

Employees who are required by law to have their taxes withheld from their paychecks fall under what the Internal Revenue Service (IRS) calls the “statutory employee” category. Although most independent contractors are exempt from having their taxes withheld, companies are able to do so for employees who fulfill certain requirements:

The employee is responsible for carrying out the majority of the duties outlined in the employment agreement.
While providing these services, the employee has no substantial financial stake in the company’s assets.
There is a consistent pattern of the worker providing the same services to the same company.

When filing their yearly tax returns, individuals who belong to this category of employees can use Schedule C instead of Schedule A to claim work-related expenses. Schedule C costs are exempt from the 2% adjusted gross income barrier, so that statutory workers can deduct a larger portion of their business expenses compared to other employees.

In most cases, businesses do not provide statutory employees with the same benefits that they provide to full-time employees. Some forms of government assistance, such as retirement, health insurance, and vacation pay, may not be available to those who fulfill this description. People who are statutory employees and get these perks might be thought of as standard employees.

What are the requirements for statutory employees?

Statutory employees are defined by the Internal Revenue Service as the following:

Delivery drivers for non-dairy foods and drinks, dry cleaners, and laundry services
Individuals who work full-time for the same insurance business selling annuity or life contracts
People whose jobs allow them to work remotely and who rely on company-issued equipment
Salespeople who travel the country on a regular basis to place orders with the company’s distributors, merchants, contractors, and other business partners

For further information on how to determine your tax status, see Publication 15-A, Employer’s Supplemental Tax Guide, which is available from the Internal Revenue Service. This piece explains the differences between employees and independent contractors when it comes to tax rules.

Information Relating to Statutory Employee Taxes

Anybody who makes half of the contributions to Social Security and Medicare is considered a statutory employee. The Federal Insurance Contributions Act (FICA) taxes are a combination of the two types of taxes listed below:

Contributions to social security: 6.2% from the business and 6.2% from the worker equals 12.4%.
Contributions to Medicare: 1.45% each from the company and the employee brings the total to 2.9%.

Altogether, this brings the total amount of FICA tax paid to 15.3%.

Employers in this category are required to mark Box 13 on Form W-2, as mentioned above. They are not required to submit Form 1099-MISC because it is intended for freelancers.

It is possible for statutory workers to deduct their expenditures in the same manner that a company would, which is through the use of a Schedule C.

People can fill out this form to disclose their income as well as certain expenses, like ads, office costs, travel, and taxes.

Additionally, companies are not required to deduct any federal, state, or local income taxes from their employees’ paychecks; employees must pay these taxes on an annual basis. Therefore, these workers should have enough money on hand to pay their taxes in installments or all at once when the time comes.

A Guide to Employing and Paying Statutory Employees

There is no difference between employing a statutory employee and any other type of employee. A hiring manager extends an offer of employment and payment conditions to a potential employee. The compensation structure for these workers differs slightly from that of regular employees. Typically, employers compensate these workers in a variety of ways, including commissions, piece rates, or set wages.

Rather than completing a W-4, Employee’s Withholding Certificate, workers are instead required to fill out a W-9, Request for Taxpayer Identification Number and Certification.

It is common practice to use an individual’s Social Security number (SSN) or taxpayer identification number (TIN) when verifying an employee’s identity on a W-9 form.

Independent Contractor vs. Statutory Employee

Statutory workers differ slightly from independent contractors in that they usually work for a single company. People in this category provide their services to both companies and individuals. In many cases, they work for themselves. Consequently, they must pay their fair share of federal, state, and local income taxes, as well as FICA taxes in full.

Many professionals, such as dentists, plumbers, electricians, and other craftsmen, as well as building contractors, work as independent contractors. Others who work as freelancers in certain fields, including hairstylists and journalists, may also be considered independent contractors.

1. Are Benefits Available to Statutory Employees?

Unlike regular workers, statutory employees do not qualify for most benefits. This encompasses all matters pertaining to medical coverage, retirement, and leave policies.

2. Would a Statutory Employee Be Able to Make a SEP Contribution?

If a business provides a simplified employee pension (SEP) plan and the employee is over 21, has worked for at least three of the past five years, and earned $600 in the most recent calendar year, then they are eligible to contribute to the plan.

3. Are W-2s Issued to Statutory Employees?

At the end of January, just like other employees, statutory employees also receive a W-2 form. People can’t submit their yearly tax returns without them. Statutory workers, in contrast to regular employees, have Box 13 marked out on their W-2s.

4. Why would you want to be a statutory employee?

As a statutory employee, you get several benefits. If an employee gets a W-2, it signifies that their employer has already paid a portion of their taxes, most notably FICA. This implies that, unlike independent contractors, these workers do not have to pay taxes on their own behalf. Having said that, they must still pay income taxes. Workers in this category can additionally claim business-related costs as a tax deduction.

In Conclusion

Delivery drivers, life insurance agents, traveling salespeople, and those who use company supplies to do remote work are all examples of statutory workers. Statutory workers are considered employees for tax withholding reasons, even though they are really independent contractors.

To qualify as a statutory employee, one must meet several fundamental requirements. When it comes to programs like Medicare and Social Security, for example, both workers and businesses chip in. In contrast to independent contractors, who are required to file 1099-MISCs, these individuals submit W-2 forms with their yearly tax returns.

Statutory workers can take advantage of tax deductions for business costs, but they usually can’t get health insurance or other benefits.

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What Is a Statutory Employee on a W-2 Form

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What Is a Statutory Employee on a W-2 Form?

What Does It Mean to Be a Statutory Employee?

Which Workers Are Considered Statutory Employees?

What are the requirements for statutory employees?

Information Relating to Statutory Employee Taxes

A Guide to Employing and Paying Statutory Employees

Independent Contractor vs. Statutory Employee

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Can I Work Six Hours Without a Lunch Break?

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What Does California Law Say About Final Paycheck Rules?

Can an Employer Deny a Doctor’s Note?

How Much Can You Sue an Employer for Misclassification?

How Serious Is an EEOC Complaint?

Do You Have Sample Letters for Termination of a Contract?

What Is a WARN Notice in California?

What Is FICA and How Does It Impact Payroll Taxes?

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