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Statutory employees occupy a sort of middle ground between independent contractors and regular employees. They are workers in certain occupations who would not be considered employees under the usual rules, but who have been declared employees under the federal tax laws so that their employers must withhold FICA taxes on their income.
If you are a classified as a statutory employee, you must report your income on Schedule C, although your employer should give you a W-2 Form that reports this income and shows that payroll taxes were withheld on it.
Because FICA taxes have already been paid by your employer on this income, you don't have to file a Schedule SE and pay Self-Employment Contributions Act (SECA) tax on it. Just be sure to check the box on Line 1 on your Schedule C or C-EZ, so that the IRS doesn't go looking for a Schedule SE that's not there.
If you have both statutory employee income and other income from your own business, do not combine these two types of income on a single Schedule C. You must file two Schedule Cs, and only the income from your non-statutory-employee business will flow through to your Schedule SE.
Occupations that may be considered statutory employees are:
Statutory employees are entitled to deduct their business expenses on Schedule C, and must pay income taxes on their net income since their employers are not required to withhold income taxes from their pay.