What does statutory employee mean?
Wondering what does statutory employee mean? Read this article to find out if you’re a statutory employee and what you can deduct from your taxes.
Do you want to know what does statutory employee mean? Often, there is confusion when you receive your W2 at the end of the year and notice that you are designated as a statutory employee.
Read this article to learn what a statutory employee is, and how it affects your taxes.
Statutory Employee Definition
A statutory employee is an independent contractor or freelancer that’s treated as an internal employee for tax purposes. Statutory employees are regarded as independent contractors for income purposes, but they’re considered employees from a federal insurance and medical care tax perspective.
Who qualifies as a statutory employee?
To qualify as a statutory employee you need to pay self-employment tax. This means you pay half of your contribution to Medicare and Social Security, which are known together as the Federal Insurance Contributions Act (FICA) taxes. These two taxes are divided into 6.2% each for the employer and employee, totaling 12.4% for Social Security Contributions, and 1.45% each for the employer and the employee, totaling 2.9%.
What is a statutory employee W-2?
Legally, statutory employees are considered internal employees. Therefore, at the end of the tax year, you receive a W2 form (instead of a 1099-MISC form). Form 1099 is given to independent contractors. Statutory employees receive the same W2 form as all other internal employees. However, there’s one difference. That difference is that box 13 is checked on their W2. Box 13 on a W2 means you are treated as a statutory employee by your hiring company. Additionally, since statutory employees are not legally employees in practice, they are responsible for paying their own income taxes as their employers cannot withhold taxes.
What does statutory employee mean on a W2 form?
Some people ask themselves, why does my W2 say I’m a statutory employee?
You’re probably asking yourself this question because you noticed that on your W2 form box 13 is checked. You are a statutory employee if your W2 form has a check-in box 13. This means that the government views you as an independent contractor whose employer is making equal contributions to Medicare and Social Security for tax purposes.
It also means that the government has decided to treat you as an independent contractor in terms of your income, but also as an employee with regard to Medicare and Social Security taxes. You should consult a lawyer if you believe you’ve wrongly been labeled a statutory employee.
What can a statutory employee deduct?
A statutory employee can deduct business expenses, like mileage expenses, on Schedule C. Essentially, you’ll be treated like a self-employed individual or small business when it comes to tax write-offs. When making deductions, there’s no difference between you and any other independent contractor or small business. You being a statutory employee is only relevant with regard to your FICA tax contributions. After you’ve made your tax deductions and write-offs, you’ll pay tax on your net income.
What are the benefits of being a statutory employee?
The biggest benefit of being a statutory employee is your income is treated like the income of someone who is self-employed or a small business owner. This means you can take advantage of all self-employed tax deductions. Therefore, your net income is reduced, resulting in more take-home income for yourself. This is particularly true if you have a lot to write off. Be sure to keep track of all of your expenses with an expense tracker app. That way you never miss out on a tax write-off. Other than that, there are no other benefits and since you’re not a common-law employee you’re not entitled to conventional benefits like paid vacation, matched 401K, etc.
We hope that reading this article has helped clarify what a statutory employee is, and how statutory employees are different from common law employees in terms of tax purposes.
Shat do you enjoy about being a statutory employee?
Let us know in the comments what you enjoy about being a statutory employee to help our community better understand why its so great toe ne one.
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