Statutory Employee

What is Statutory Employee?

A statutory employee is a worker who is legally classified as an independent contractor but is treated as an employee for federal tax withholding purposes. The IRS defines specific categories of workers who qualify, including certain drivers, life insurance agents, home workers, and travelling salespeople.

Why Statutory Employee Matters

Employers must withhold Social Security and Medicare taxes for statutory employees, but these workers can also deduct business expenses on Schedule C. This hybrid classification has important implications for both payroll processing and the worker’s tax filing obligations.