What Is a Statutory Employee? | Definition and Examples

Have you ever seen that bantam box on a W-2 form for statutory employees ? Have you wondered, What is a statutory employee ?
If so, you ’ ra not alone. many employers without statutory employees aren ’ triiodothyronine entirely sure what this classification means. But at one point, you may need to hire a statutory employee .

Statutory employee definition

A statutory employee is an independent contractor who qualifies for employee treatment. Employers withhold the employee dowry of Social Security tax and Medicare tax from a statutory employee ’ second wages. And, employers contribute the employer helping of Social Security and Medicare taxes. however, a statutory employee is technically an independent contractor who works for themselves .
Employers are not required to withhold federal, country, or local income taxes from a statutory employee ’ second wages.

As a brief retread, you do not handle payroll taxes for autonomous contractors. however, you do withhold and contribute payroll taxes for employees .
freelancer contractors owe double what employees owe for Social Security and Medicare taxes. independent contractors pay Social Security and Medicare taxes in the shape of self-employment tax. Self-employment tax basically covers both employee and employer portions of SS and Medicare taxes. Employees are merely responsible for the employee dowry of Social Security and Medicare taxes .
For all of you already confused by the autonomous contractor vs. employee classification, a statutory employee is just another curveball. To help, think of a statutory employee as a desegregate between an independent contractor and employee .
statutory employees are independent contractors who are permitted to be treated as employees when it comes to payroll taxes .
Do you need to treat a worker as a statutory employee ? To answer that question, you need to understand whether the worker qualifies .

Who is considered a statutory employee?

now that you can answer what is a statutory employee, you need to know who qualifies for the classification. All statutory employees are independent contractors. But, not all independent contractors are statutory employees .
The IRS requires employers to classify a identical specific group of autonomous contractors as statutory employees .
According to the IRS, mugwump contractors who qualify for statutory employee status include the follow :

  • 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. The driver must be your agent or paid on commission.
  • Life insurance sales agents: A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts (or both), primarily for one life insurance company.
  • Home-based workers: An individual who works at home on materials or goods that you supply (e.g., piece work). 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 principal 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. And, the goods sold must be merchandise for resale or supplies for use in the buyer’s business operation.

You may notice a model in the types of workers above : many either earn committee pay or use your business ’ s resources .
Do employers have to pay unemployment tax for statutory employees ? sometimes .
statutory employees who fall under traveling or city salesperson and agent or commission drivers are subject to federal unemployment tax ( FUTA ) .

Do you have to withhold taxes?

withhold Social Security and Medicare taxes from statutory employees ’ wages if all three of the pursue are true :

  1. The service contract states or implies that the worker substantially and personally performs all the services.
  2. The statutory employee does not have a substantial investment in the equipment and property they use to perform the services (exception: transportation facilities).
  3. The statutory employee continually performs the services for the same employer

again, you are not required to withhold income tax from a statutory employee ’ mho wages.

Filling out Form W-2 for a statutory employee

mugwump contractors receive Form 1099-MISC. Employees receive Form W-2. Statutory employees besides receive Form W-2 .
To fill out Form W-2 for a statutory employee, you must mark the modest box under “ statutory employee ” in Box 13 .
what is a statutory employee
statutory employee earnings are considered “ early compensation. ” Record the amount you paid the worker in Box 1 .
besides enter the statutory employee ’ south wages that are subjugate to Social Security and Medicare taxes in Boxes 3 and 5. And, enter how much you withheld for these taxes .
Remember to send Forms W-2 to employees and statutory employees no late than January 31 each year .
After receiving their form W-2, a statutory employee can complete their personal tax return. statutory employees attach Schedule C, Profit or Loss from Business, to Form 1040. Unlike employees, statutory employees do not fill out Schedule A, Itemized Deductions .

Advantages of being a statutory employee

There are numerous statutory employee benefits for the actor. statutory employees can reap both the benefits of being an employee adenine well as the advantages of being an autonomous contractor .
statutory employees are only creditworthy for the employee share of Social Security and Medicare taxes .
Because statutory employees file Schedule C rather of Schedule A, they are eligible for bigger tax deductions .
Some statutory employees may be eligible to receive unemployment indemnity if they lose their jobs .
Whether you have employees, statutory employees, or both, you must run payroll. With Patriot ’ s on-line payroll software, you can print checks or use mastermind lodge, access technical support, and more. And if you opt for our Full Service payroll services, we ’ ll wield tax filings on your behalf. quick to give our award-winning software a try ?

This article has been updated from its original publication date of May 8, 2013 .
This is not intended as legal advice ; for more data, please pawl here .

source : https://www.peterswar.net
Category : Finance

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