Box 13 Statutory Employee

By Tessa Smith

Nearly all workers are categorized as either self-employed or a staff member of another person or company, and every status has its benefits and drawbacks. In this post, we shall analyze the concept of the statutory employee, as well as the conditions surrounding their existence and operations. The pros and cons of box 13 statutory employee will also be addressed to understand the rules guiding their employer.

Who is a statutory employee?

For clarification, it’s necessary to define the term. A statutory employee is a contractor who is independent, and according to standard law rules is regarded as an employee under the statute concerning specific employment tax intentions.

The statutory employee can deduct their costs on a Form 1040, Schedule C, Profit or loss from business as immediate counterbalances to income. The flexibility in their operation is one of the benefits they enjoy, although they still have to make payment for the self-employment tax, which contains the business and worker share of FICA tax. The employee pays half of the social security and Medicare taxes while the employer/company makes payment for the other half.

In any case, full employees don’t have the luxury or capability to deduct their costs directly from their income. Instead, the employee expenses incurred from the business are liable to 2% of gross income restriction. Hence, a lot of employees aren’t able to get any tax reduction for their business expense which isn’t reimbursed.

A statutory employee enjoys the best of two worlds; some of the advantages of full employees and the benefits of independent contractors as well. They are similar to self-employed persons yet without significant investment in the offices utilized in the execution of services. The consideration of who qualifies as a statutory worker revolves around the prevailing circumstances.

Income tax is not deducted from the wages of statutory employees as they pay the income tax. They receive Form W-2 with box 13, statutory Employee, checked apart from Form 1040 and schedule C to accurately collate expenses accordingly.

Home workers as statutory employees

Some statutory employees are home workers who perform services on specific terms and conditions as follows:

Off the business premises of the principal

Services according to specifications or guidelines received from the principal

Work on materials provided by the principal

Items earmarked for delivery back to the principal or someone assigned to him or her.

It’s important to emphasize the fact that the place a home worker executives a task or renders service doesn’t stand for the home office deduction stipulated in Sec.280A. Furthermore, a plain reading of the statute and regulations indicates that the service doesn’t have to be executed at the employee’s home. It’s essential for the employee to perform the services in another place apart from the premises of the employer.

Statutory employees are more affordable to hire in comparison to regular employees. Nevertheless, they are more expensive to engage when compared with independent contractors as employers are required to pay Social security and Medicare taxes on wages in the FICA tax form.

Some variables are taken into consideration in determining if a worker is a statutory employee, such as the level of control an employer wields over the worker in the performance of duties as being the most significant factor amongst others.

Statutory employees are made up of the following:

Drivers- agents or commission

Full-time insurance salesperson

Specific home workers

Sales representatives (traveling or city) that market products and services to business customers.

The employer and statutory employee must have a service contract that guides their business relationship which stipulates that all the services executed by the category as mentioned above must be carried out directly by the person. Additionally, the principles for a statutory employee have no bearing for any person who has significant level of investment in the facilities utilized in the execution of the services with the exception of transportation facilities. As a result, the individual isn’t permitted to own a private vehicle for transport in the execution of duties and services. Furthermore, the conditions for statutory employee are not applicable if the services are a solitary transaction and not part of a proceeding business relationship. A significant investment in facilities demonstrates the worker is an autonomous contractor.

Statutory employees are more similar in nature to independent contractors by reason of factors that determine their status. However, the difference between the statutory employee and the independent contractor lies in the fact that the former has more claims to benefits than the latter.

Consequently, the court itemized some factors to ascertain whether an individual is a statutory employee or an independent contractor, and acknowledges that each of the factors is determinative so they ought to be evaluated together and not in isolation. The emphasis was on the level of control a principal has over the individual than on other variables such as the party that invests in facilities being used in the execution of work, the ability of the principal to dismiss the individual, and the chance of the individual to make profit or loss.

Hence, to be categorized as a statutory employee the individual must display traits of an independent contractor who has more control over the performance of a task with little supervision from the employer. The courts usually check to verify the intention of the parties involved to ascertain statutory employee status.

Although the employer doesn’t deduct income tax from a statutory employee, the individual is responsible for payment of his or her income tax just like independent contractors.

The employer must provide the statutory employee with a form W-2 which has the “Statutory Employee” option checked in Box 13.

Overall, the statutory employee holds more benefits for the employer and employee as the former doesn’t have to make provision for office space as business expenses incurred are deducted from income.

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