Examples and Requirements of Statutory Employees

describe the imageStatutory employees may refer to a wide range of employees including: life insurance salesmen, home workers, corporate officers, and salespeople who travel to solicit orders for the business.

The statutory employee designation is most commonly seen in association with jobs where the pay is commission-based. This works out to be a larger tax deduction for business expenses because Schedule C deductions do not receive the same 2 percent adjusted gross income threshold that Schedule A deductions receive.

To withhold Social Security and Medicare taxes for a statutory employee, the following criteria should be met:

  • The contract for the service provider states or implies that all services are to be performed personally by the individual.
  • The services indicated are performed on a continual basis for this same payer.
  • The individual does not have an investment in the property or equipment used to perform the contracted services.

Additionally, statutory employees receive a W-2 that includes withholdings for Social Security and Medicare. The remaining information is up to the employee to provide to the IRS. In some states, employers aren’t required to include statutory employees in the employee benefits programs in which traditional employees can participate. It’s important to check with specific state laws, however, to determine whether or not this applies to your business.

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