A statutory employee is a specific type of worker the IRS treats as an employee for certain tax purposes, even though they may otherwise look like an independent contractor. Only certain jobs qualify, and the IRS has strict rules for this classification.
How statutory employees are different
Statutory employees:
Receive a Form W-2, not a 1099
Have Social Security and Medicare taxes withheld by their employer
Usually don’t have federal income tax withheld, unless they request it
Unlike regular employees, statutory employees report their income and deduct work-related expenses on Schedule C.
Unlike independent contractors, statutory employees don’t pay self-employment tax because FICA taxes are already withheld.
Who’s considered a statutory employee?
You may qualify as a statutory employee if you fall into one of a few specific job categories and meet IRS requirements.
Common examples include:
A driver who distributes beverages (other than milk) or picks up and delivers laundry or dry cleaning for one company
A full-time life insurance sales agent whose main business is selling life insurance or annuities for one company
A homeworker who works on materials supplied by a company and returns the finished product
A traveling or city salesperson who works for one business and regularly takes orders from retailers or similar businesses
To qualify, the IRS generally expects that:
You perform the work personally
You have little or no investment in equipment or facilities used for the work
You perform services on a continuing basis for the same payer
How taxes work for statutory employees
Form W-2 and withholding
Your employer must issue you a Form W-2 with the statutory employee box checked. Social Security and Medicare taxes are withheld, but federal income tax usually isn’t unless you ask for it.
Reporting income and expenses
You report your wages and deduct allowable business expenses on Schedule C, which can reduce your taxable income.
Unemployment tax
Special rules apply to how unemployment taxes are handled for statutory employees.
Statutory employee vs. other worker types
Regular employee: Employer withholds federal income tax, Social Security, and Medicare
Statutory employee: Employer withholds Social Security and Medicare; income and expenses are reported on Schedule C
Independent contractor: No tax withholding; income and expenses are reported on Schedule C and subject to self-employment tax
Key takeaway
Statutory employees fall into a narrow IRS category with special tax rules. If you qualify, you’ll receive a W-2, have FICA taxes withheld, and still be able to deduct work expenses on Schedule C. Whether you qualify depends on your job type and how you work, not just what you’re called.
This content is provided for informational purposes only and should not be construed as tax, legal, financial, accounting, or other advice. Rules and regulations vary by location and are subject to change, so please consult with an expert if you need advice specific to you.
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