who is a statutory employee
Who is a Statutory Employee?
A statutory employee is someone who works on a commission or contract basis, but can be treated as a regular employee by statute. This allows him to be eligible for certain tax benefits. This Buzzle articles tells you about the concept of statutory employees.
- A statutory employee may work for a regular employer on a periodic or commission basis or may be into business himself.
- Such individuals follow a different protocol for filing taxes and are eligible for special deductions.
- Tax deductions are the very reason they are classified as regular employees.
- Examples of such employees include private businessmen, insurance agents, traveling salesmen, commission drivers, food/beverage delivery drivers, freelancers, work-from-home business people, etc.
- Such people are primarily into private businesses themselves; however, they work for a single company/firm.
- Ideally, independent contractors are also independently paid for their work, but they are slightly different from statutory employees. They file for the taxes and handle any related formalities themselves; the employer is not liable to withhold taxes on them.
- In case of statutory employees, even though they might be commission-based or working as agents, the employer has to pay taxes on his salary and treat him like a regular worker. Keep in mind though, that the employee does not file for self-employment tax.
- Although the employer withholds FICA taxes, he cannot do the same for federal taxes.
- The employee has to furnish Form W-2 (Wage and Tax Statement).
- Only if the 'Statutory Employee' option is checked on W-2, can the employee claim for business expenses on Schedule C. This has to be done by the employer (a W-2 form is filled by the employer).
- To enter your income and expenses, you can go to the Federal Q & A on your TaxAct Return. Then you can go to Income and Expense for Statutory Employees.
- Through this, you can fill Schedule C, complete the questionnaire, and review the information.
- Your income will be listed in box 1 of the W-2 form. This information has to be filled on line 1 of Schedule C.
- Statutory employee benefits are almost the same as regular benefits.
- A statutory employee receives commissions, sick pay, maternity leave, paid vacations, maintenance expenses, travel expenses, etc.
- He will not report any itemized deductions, since he does not fill up Schedule A.
- It is sometimes difficult to classify individuals as statutory employees or independent contractors.
- Since independent contractors are more convenient to deal with, employers may list down statutory employees as independent contractors. This can get very complicated for the employer if the tax authorities find out about the same.
- If individuals are doubtful about what category of employees they are to be classified under, they can take help from a tax professional or a corporate lawyer.
- They will make sure you are put under the most suitable category and will also help you handle your tax affairs efficiently.
- Employers who wantonly classify employees in the wrong category may be guilty under the law and may be subject to heavy penalties.