A statutory employee is an independent contractor under American common law who is treated as an employee, by

statute A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by le ...

, for purposes of

tax withholding Tax withholding, also known as tax retention, Pay-as-You-Go, Pay-as-You-Earn, Tax deduction at source or a ''Prélèvement à la source'', is income tax paid to the government by the payer of the income rather than by the recipient of the income ...

s.See generally

Internal Revenue Code The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 ...

section 3121(d)(3), at . For a standard independent contractor, an employer cannot withhold taxes. Statutory employees are also permitted to deduct work-related expenses on IRS

Schedule C Internal Revenue Service (IRS) tax forms are forms used for taxpayers and tax-exempt organizations to report financial information to the Internal Revenue Service of the United States. They are used to report income, calculate taxes to be paid ...

instead of Schedule A in the United States tax system. As a result, they are allowed a greater tax deduction for business expenses than standard employees, as Schedule C expenses are not subject to the 2% adjusted gross income threshold as seen with Schedule A.

Criteria

For an individual to be considered a statutory employee, all of the following conditions must apply: Some examples of persons who may be considered statutory employees are as follows:

Advantages over standard employee

Statutory employees occupy an intermediate position between

employees Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any othe ...

and independent contractors from the perspective of the employer. Statutory employees are less expensive to hire than regular employees because the employer does not have to pay unemployment taxes. However, such employees are more expensive to hire than independent contractors because Social Security and Medicare taxes must be paid on wages in the form of

FICA tax The Federal Insurance Contributions Act (FICA ) is a United States federal payroll (or employment) contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for reti ...

. Statutory employees pay FICA tax through their employer, and so do not pay self-employment tax; despite this, they must report expenses, income and wage. Similar to independent contractors, statutory employees may deduct business expense from W-2 earnings.

Criteria

Advantages over standard employee

See also

References

Further reading