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Tracy025

New Member

04/04/09 11:19am PDT
Viewed by asker 04/07/09 5:58am PDT

Statutory employee yes or no...

I have a few W-2 clients that are Sales people and they have many out of pocket employee expenses, plus the home office, can they be Statutory Employees? I do the entire payroll including the W-2's, can I make that decision? Or is there a form that is submitted to the IRS and do they (the IRS) make that determination? What are the qualifications for a Statutory Employee? I have done some reading and I am only more confused on the issue of whether they are or are not. Are they more likely to be audited with all these expenses without being Statutory Employees? Or does that make no difference in that regard. Any help that I can receive on this issue, I would be extremely grateful. Thank you in advance.

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4 Replies

ArchieLeach

Accountant Community AllStar

04/04/09 11:33am PDT

Morons. I've got MORONS on my team. Nobody is going to rob us going DOWN the mountain. We have got no MONEY going DOWN the mountain. When we HAVE GOT the money, goin' back UP the mountain, THEN you can sweat.

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DonL1954

Accountant Community AllStar

04/04/09 11:47am PDT

Statutory Employees

Statutory employees occupy a sort of middle ground between independent contractors and regular employees. They can be defined as 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 will also report your income on Schedule C or C-EZ, 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:

Full-time life insurance salespersons who work primarily for one insurance company.

Agent drivers and commission drivers who deliver specified products â€” individuals who (1) operate their own trucks or the trucks of the persons for whom they perform services, (2) serve customers designated by their principals and customers they solicit on their own initiative, (3) make wholesale or retail sales, and (4) are paid commissions on their sales or earn the difference between what they charge their customers and what they pay their principals for the products or services they sell. Such drivers are "statutory employees" if they distribute beverages (other than milk), meat, vegetables, fruit, or bakery products, or if they pick up and deliver laundry or dry cleaning.

Traveling or city salespersons (other than agent drivers or commission drivers) who work full time on the principal's behalf and remit orders from customers who are retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses whose primary function is the furnishing of food or lodging. The orders must be for items that their customers will resell or will use as supplies in their business operations.

Homeworkers who work on a contract or piecework basis, in their own homes or in the homes of others. For example, persons hired to type up correspondence and to do other word processing jobs on their home computers would be homeworkers.

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.

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peterhawaii

Accountant Community AllStar

04/04/09 12:08pm PDT

The solution

The employer needs to know the rules and correctly mark the W-2. In many cases they do not.

Here are the four category of statutory employees that I know of. These are taken from a class in 2001 and I assume they are still the same.

1. Full time life insurance agents whose principal business is selling life insurance and or annuity contracts primarily for one life insurance company.

2. Agent or commission drivers who deliver food or beverage other than milk, laundry or dry cleaning for the employer.

3. Homeworker who work according to the guidelines of the employer for whom the work is done, with materials furnished by and returned to that that employer, or to someone the employer designates.

4. Travelling or city salesperson (other than those listed in section 2 above) who work full time (except for side line sales) for one firm or person getting orders from customers. The orders must be for items for resale or use as supplies in the customers business. The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants or other businesses providing food and beverage.

In addition the statory employee status only apply if the following three tests are met.

1. It is understood from a service contract that the services will be performed by that person.

2. The person does not have a substantial investment in facilities (osther than transportation) used to perform the services.

3. This service involve a continuing relationship with the person for whom the services are performed.

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Mt Juliet CPA

Accountant Community AllStar

04/04/09 7:26pm PDT