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What is a statutory employee?

A statutory employee is an individual who is specifically defined as an employee by statute.

Although most individuals are determined to be employees under common law, some workers—who for other purposes are viewed as independent contractors—have been defined as employees for employment tax purposes. In essence, these are independent contractors who must be treated as employees for specific tax withholdings.

In most independent contractor relationships, an employer does not withhold employment taxes that fund Social Security or Medicare (the Federal Insurance Contributions Act, or FICA). However, the Internal Revenue Service (IRS) stipulates certain professions for which an individual may remain an independent contractor under common law rules, but for which FICA taxes must be withheld. (States may add to this mandatory withholding of taxes by expanding the definition of a statutory employee. See, for example, California's Information Sheet on statutory employees.)

Under the IRS guidelines for meeting the requirements of a statutory employee, the employer is instructed to withhold FICA taxes on income. Because statutory employees' FICA is withheld through an employer, the employees do not pay self-employment tax; however, they must still report their wages, income and allowable expenses.

The IRS provides guidelines for statutory employees, including designated categories and three required conditions. To determine if a statutory employee relationship exists, employers can find detailed information from the IRS here.


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