Statutory Employees - IRS Guidance

Overview

Statutory employees, while classified as independent contractors under common law, are treated as employees for certain tax purposes if they meet specific criteria.

Categories of Statutory Employees

1. Drivers - Those distributing beverages (excluding milk) or food products, or delivering laundry/dry cleaning, if they are agents or commission-based.
2. Life Insurance Sales Agents - Full-time agents whose main business is selling life insurance or annuities for one company.
3. Home Workers - Individuals working at home on materials provided by the employer, returning finished goods according to specifications.
4. Salespersons - Full-time, traveling or city salespeople taking orders from businesses for merchandise or supplies used in business operations.

Determining a Statutory Employee

• Refer to Publication 15-A, the Employer's Supplemental Tax Guide, for detailed criteria.

Social Security and Medicare Taxes

• These taxes must be withheld if:
  1. The contract requires personal service performance.
  2. There is no significant investment in facilities, except for transport.
  3. Services are performed continually for the same payer.

Income Tax

• Federal income tax should not be withheld from statutory employees' wages.

Federal Unemployment (FUTA) Tax

• Publication 15-A covers FUTA tax details and reporting for statutory employees.

Reporting Income and Expenses

• Statutory employees should use Schedule C (Form 1040) to report income and expenses.

Additional Resources

• Independent Contractor vs. Employee: Informational link
• Exempt Organizations and Statutory Employees: Informational link
• Form 1099-NEC: For nonemployee compensation reporting.
• Publications: Publication 15-A and Publication 1779 on employee classification.

Page Maintenance

• Last reviewed or updated on February 3, 2025.

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