What is a "statutory employee"?

Question

What does it mean in terms of benefits and taxes?

Answer 1

If you are a statutory employee this status is marked on your W-2.  You do not decide whether or not you are a statutory employee.  Mostly these employees work in sales or delivery, and would meet the definition of independent contractor except for the law ("statute") that specifies them as employees.

Your employer must pay his share of Social Security and Medicare taxes.  You are also covered for unemployment, and workers compensation.  

Your employer will withhold your share of Social Security and Medicare from your pay.  Usually there is no income tax withheld.

Although you do not have to pay self-employment taxes, you can deduct expenses of your job on Schedule C as if you were self-employed, and pay income taxes on your net income after expenses.  

You are not subject to the restrictions on job expense deductions that other employees have (Schedule A).  So it is easier for a statutory employee to reduce his taxable income by deducting expenses than for a regular employee.

Answer 2

A full-time traveling or city salesperson who solicits orders from wholesalers, restaurants, or similar establishments on behalf of a principal. The merchandise sold must be for resale (e.g., food sold to a restaurant) or for supplies used in the buyer's business;

A full-time life insurance agent whose principal business activity is selling life insurance and/or annuity contracts for one life insurance company;

An agent-driver or commission-driver engaged in distributing meat, vegetables, bakery goods, beverages (other than milk), or laundry or dry cleaning services; and

A home worker performing work on material or goods furnished by the employer

Statutory employees report their wages, income, and allowable expenses on Schedule C (or Schedule C-EZ), Form 1040.  Statutory employees are not liable for self-employment tax because their employers must treat them as employees for social security tax purposes.